official statement dated may 28, 2020 harris county …€¦ · services. neither the district, the...

OFFICIAL STATEMENT DATED MAY 28, 2020 IN THE OPINION OF BOND COUNSEL, UNDER EXISTING LAW, INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX

PURPOSES AND INTEREST ON THE BONDS IS NOT SUBJECT TO THE ALTERNATIVE MINIMUM TAX ON INDIVIDUALS. SEE “TAX MATTERS” FOR A DISCUSSION OF THEOPINION OF BOND COUNSEL.

The Bonds will be designated as “qualified tax-exempt obligations” for financial institutions. See “TAX MATTERS - Qualified Tax-Exempt Obligations.”

NEW ISSUE - Book-Entry-Only Ratings: S&P Global Ratings (AGM Insured) “AA” (stable outlook) Moody’s Investors Service, Inc. (AGM Insured) . . . . “A2” (stable outlook)

Moody’s Investors Service, Inc. (Underlying)... “A3"See “BOND INSURANCE” and “RATINGS” herein

$4,675,000HARRIS COUNTY MUNICIPAL UTILITY DISTRICT NO. 278

(A Political Subdivision of the State of Texas, located within Harris County, Texas)

UNLIMITED TAX REFUNDING BONDS, SERIES 2020Dated: June 1, 2020 Due: September 1, as shown below

Principal of the above bonds (the “Bonds”) is payable by the paying agent/registrar, initially, The Bank of New York Mellon Trust Company, N. A., in Dallas,Texas, or any successor paying agent/registrar (the “Paying Agent,” “Registrar” or “Paying Agent/Registrar”). Interest on the Bonds accrues from June 1, 2020, andis payable on September 1, 2020 (three-month interest payment), and on each March 1 and September 1 thereafter until the earlier of maturity or redemption. TheBonds are issued in denominations of $5,000 or any integral multiple thereof in fully registered form only.

The Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), which will act assecurities depository for the Bonds. Beneficial Owners of the Bonds will not receive physical certificates representing the Bonds, but will receive a credit balance onthe books of the nominees of such Beneficial Owners. So long as Cede & Co. is the registered owner of the Bonds, the principal of and interest on the Bonds will bepaid by the Paying Agent directly to DTC, which will, in turn, remit such principal and interest to its participants for subsequent disbursement to the beneficial ownersof the Bonds as described herein. See “THE BONDS – Book-Entry-Only System.”

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrentlywith the delivery of the Bonds by Assured Guaranty Municipal Corp. (“AGM” or the “Insurer”).

MATURITY SCHEDULECUSIP Prefix (a): 413946

Initial InitialPrincipal Maturity Interest Reoffering CUSIP Principal Maturity Interest Reoffering CUSIPAmount (Due September 1) Rate Yield (b) Suffix (a) Amount (Due September 1) Rate Yield (b) Suffix (a)

$ 35,000 2020 4.00% 1.00% NZ3 $ 460,000 2026(c) 2.00% 1.44% PF55,000 2021 4.00 1.05 PA6 470,000 2027(c) 2.00 1.58 PG3

400,000 2022 4.00 1.06 PB4 485,000 2028(c) 2.00 1.74 PH1420,000 2023 4.00 1.14 PC2 500,000 2029(c) 2.00 1.78 PJ7420,000 2024 4.00 1.22 PD0 510,000 2030(c) 2.00 1.88 PK4445,000 2025 4.00 1.31 PE8 525,000 2031(c) 2.00 1.97 PL2

____________________(a) CUSIP is a registered trademark of the American Bankers Association. CUSIP data is provided by CUSIP Global Services, managed by S&P Global Market

Intelligence on behalf of the American Bankers Association. CUSIP numbers have been assigned to this issue by the CUSIP Service Bureau and are includedsolely for the convenience of the owners of the Bonds. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIPservices. Neither the District, the Financial Advisor (as defined herein), nor the Underwriters (as defined herein) take any responsibility for the accuracy of CUSIPnumbers.

(b) Information with respect to the initial reoffering yields of the Bonds is the responsibility of the Underwriters. Initial reoffering yields represent the initial offeringprice to the public which has been established by the Underwriters for public offerings, and which subsequently may be changed. Accrued interest from June1, 2020, is to be added to the price.

(c) The Bonds maturing on and after September 1, 2026, are subject to redemption prior to maturity at the option of Harris County Municipal Utility District No.278 (the “District”), as a whole or in part, on September 1, 2025, or any date thereafter, at a price equal to the principal amount thereof plus accrued interest fromthe most recent interest payment date to the date fixed for redemption.

If fewer than all of the Bonds are redeemed at any time, the particular maturities and amounts of the Bonds to be redeemed shall be selected by the District inintegral multiples of $5,000 within any one maturity. If fewer than all of the Bonds of any given maturity are to be redeemed at any time, the particular Bonds to beredeemed shall be selected by such method of random selection as determined by the Registrar (or by DTC in accordance with its procedures while the Bonds are inbook-entry-only form). The Registered Owner of any Bond, all or a portion of which as been called for redemption, shall be required to present same to the Registrarfor payment of the redemption price on the portion of the Bond so called for redemption and the issuance of a new Bond in the principal amount equal to the portionof such Bond not redeemed.

The proceeds of the sale of the Bonds, plus certain other lawfully available funds of the District, will be applied to refund certain outstanding bonds of the Districtand to pay the costs of issuance of the Bonds. See “PLAN OF FINANCING — Use of Bond Proceeds.” The Bonds, when issued, constitute valid and bindingobligations of the District, and are payable from the proceeds of an annual ad valorem tax, without legal limitation as to rate or amount, levied against all taxableproperty located within the District. See “THE BONDS – Source of Payment.” Neither the State of Texas, the City of Houston, Texas, Harris County, Texas, nor anypolitical subdivision other than the District shall be obligated to pay the principal of and interest on the Bonds. Neither the faith and credit nor the taxing power ofthe State of Texas, the City of Houston, Texas, or Harris County, Texas, is pledged to the payment of the principal of and interest on the Bonds.

The Bonds are offered subject to prior sale, when, as and if issued by the District and accepted by the Underwriters, subject among other things to the approvalof the Attorney General of Texas and of Allen Boone Humphries Robinson LLP, Houston, Texas, Bond Counsel. Certain legal matters will be passed upon for theUnderwriters by McCall, Parkhurst & Horton L.L.P., Houston, Texas, as Underwriters’ Counsel. Delivery of the Bonds in book-entry form is expected on or aboutJune 25, 2020, at The Bank of New York Mellon Trust Company, N.A., in Dallas Texas.

SAMCO CAPITAL MARKETS RBC CAPITAL MARKETS

TABLE OF CONTENTS

Page

USE OF INFORMATION IN OFFICIAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4SALE AND DISTRIBUTION OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Prices and Marketability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

BOND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Bond Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Assured Guaranty Municipal Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

BOND INSURANCE RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8OFFICIAL STATEMENT SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Book-Entry-Only System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Use of Certain Terms in Other Sections of this Official Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Assignments, Transfers and Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Redemption Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Replacement of Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Authority for Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Source of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Payment Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Issuance of Additional Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Financing Road Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Financing Recreational Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25No Arbitrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Annexation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Strategic Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Registered Owners' Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Bankruptcy Limitation to Registered Owners' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Legal Investment and Eligibility to Secure Public Funds in Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

PLAN OF FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Use of Bond Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29The Refunded Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Defeasance of the Refunded Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30The Non-Refunded Bonds (Remaining Outstanding Bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Sources and Uses of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Factors Affecting Taxable Values and Tax Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Tax Collection Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Registered Owners' Remedies and Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Marketability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Future Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Competitive Nature of Houston Single-Family and Multi-Family Residential and Commercial/Retail

Development and Construction Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Continuing Compliance with Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Marketability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Tropical Weather Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Changes in Tax Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Infectious Disease Outlook (COVID-19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Potential Effects of Oil Price Declines on the Houston Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Management of the District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

DEVELOPMENT AND HOME CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43DEVELOPERS AND OTHER PRINCIPAL LAND OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46BUILDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47FUTURE DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47AERIAL PHOTOGRAPH OF THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49PHOTOGRAPHS TAKEN WITHIN THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50PHOTOGRAPHS TAKEN WITHIN THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51DISTRICT DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Debt Service Requirement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Bonded Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Estimated Direct and Overlapping Debt Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Debt Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

TAX DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Debt Service Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Tax Rate Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Maintenance Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Historical Values and Tax Collection History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Tax Rate Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Analysis of Tax Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Principal 2019 Taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Reappraisal of Property after Disaster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Tax Rate Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Estimated Overlapping Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

TAX PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Authority to Levy Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Property Tax Code and County-Wide Appraisal District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Reappraisal of Property after Disaster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Property Subject to Taxation by the District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Tax Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Valuation of Property for Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61District and Taxpayer Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Rollback of Operation and Maintenance Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Levy and Collection of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Additional Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64District's Rights in the Event of Tax Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

THE SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Wastewater Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Water Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Outfall Drainage Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65100-Year Flood Plain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Subsidence and Conversion to Surface Water Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66No-Litigation Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

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NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Qualified Tax-Exempt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATION . . . . . . . . . . . . . . . . . . . . . . . . . . 69CONTINUING DISCLOSURE OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Event Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70Limitations and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70Compliance with Prior Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

OFFICIAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Certification as to Official Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Updating of Official Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

APPENDIX A - LOCATION MAPAPPENDIX B - INDEPENDENT AUDITOR’S REPORT AND FINANCIAL STATEMENTSAPPENDIX C - SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY

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USE OF INFORMATION IN OFFICIAL STATEMENT

No dealer, broker, salesman or other person has been authorized to give any information or to make any representationsother than those contained in this Official Statement, and, if given or made, such other information or representationsmust not be relied upon as having been authorized by the District.

All of the summaries of the statutes, orders, resolutions, contracts, audited financial statements, and engineering andother related reports set forth in the Official Statement are made subject to all of the provisions of such documents. Thesesummaries do not purport to be complete statements of such provisions, and reference is made to such documents, copiesof which are available from Allen Boone Humphries Robinson LLP, Phoenix Tower, 3200 Southwest Freeway, Suite2600, Houston, Texas 77027 upon payment of duplication costs.

This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended asstatements of fact, and no representation is made as to the correctness of such estimates, assumptions, or matters ofopinion, or that they will be realized.

This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state in which suchoffer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do soor to any person to whom it is unlawful to make such offer or solicitation.

Any information and expressions of opinion herein contained are subject to change without notice, and neither thedelivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implicationthat there has been no change in the affairs of the District or other matters described herein since the date hereof. However, the District has agreed to keep this Official Statement current by amendment or sticker to reflect materialchanges in the affairs of the District, and to the extent that information actually comes to its attention, the other mattersdescribed in this Official Statement until the delivery of the Bonds to the Underwriters (hereinafter defined) andthereafter only as specified herein under the caption “OFFICIAL STATEMENT - Updating of Official Statement.”

The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters havereviewed the information in this Official Statement pursuant to their responsibilities to investors under the federalsecurities laws, but the Underwriters do not guarantee the accuracy or completeness of such information.

Neither the District nor the Underwriters makes any representations as to the accuracy, completeness, or adequacy ofthe information supplied by The Depository Trust Company for use in this Official Statement.

This Official Statement contains “forward-looking” statements within the meaning of Section 21E of the SecuritiesExchange Act of 1934, as amended, which generally can be identified with words or phrases such as “anticipates,”“believes,” “could,” “estimates,” “expects,” “foresees,” “may,” “predict,” “should,” “will” or other words or phrases ofsimilar import. All statements included in this Official Statement that any person expects or anticipates will, should ormay occur in the future are forward-looking statements. These statements are based on assumptions and analyses madein light of experience and perceptions of historical trends, current conditions and expected future developments as wellas other factors the District believes are appropriate in the circumstances. However, whether actual results anddevelopments conform with expectations and predictions is subject to a number of risks and uncertainties, including,without limitation, the information discussed under “INVESTMENT CONSIDERATIONS” in this Official Statement,as well as additional factors beyond the District’s control. The important investment considerations and assumptionsdescribed under that caption and elsewhere herein could cause actual results to differ materially from those expressedin any forward-looking statement. All of the forward-looking statements made in this Official Statement are qualifiedby these cautionary statements.

Assured Guaranty Municipal Corp. (“AGM” or the Insurer”) makes no representation regarding the Bonds or theadvisability of investing in the Bonds. In addition, AGM has not independently verified, makes no representationregarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or anyinformation or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of theinformation regarding AGM supplied by AGM and presented under the heading “BOND INSURANCE” and“APPENDIX C - SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY.”

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SALE AND DISTRIBUTION OF THE BONDS

Underwriters

SAMCO Capital Markets, Inc. and RBC Capital Markets, LLC (“RBC”) (together, the “Underwriters”) have agreed,pursuant to the terms and conditions contained in a Bond Purchase Agreement, to purchase the Bonds from the Districtfor $4,846,239.00 (an amount equal to the principal amount of the Bonds, less an Underwriters’ discount of $37,119.50,plus an original issue premium on the Bonds of $208,358.50) plus accrued interest from June 1, 2020, to the date ofdelivery. The obligation of the Underwriters to purchase the Bonds is subject to certain conditions contained in the BondPurchase Agreement. The Underwriters may offer and sell the Bonds to certain dealers (including dealers depositingBonds into unit investment trusts) and others at prices lower than the public offering price stated on the cover pagehereof. The initial offering price may be changed from time to time by the Underwriters.

RBC has provided the following information for inclusion in this Official Statement: RBC and its respective affiliatesare full-service financial institutions engaged in various activities, that may include securities trading, commercial andinvestment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, RBCand its respective affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities)and provide financial instruments (which may include bank loans, credit support or interest rate swaps). RBC and itsrespective affiliates may engage in transactions for their own accounts involving the securities and instruments madethe subject of this securities offering or other offerings of the District. RBC and its respective affiliates may alsocommunicate independent investment recommendations, market color or trading ideas and publish independent researchviews in respect of this securities offering or other offerings of the District. RBC and its respective affiliates may makea market in credit default swaps with respect to municipal securities in the future.

Prices and Marketability

The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by theUnderwriters on or before the date of delivery of the Bonds stating the issue prices for the Bonds of each maturity. Otherwise, the District has no understanding with the Underwriters regarding the reoffering yields or prices of the Bondsand has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriters at theyields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of theUnderwriters.

The District has no control over the reoffering yields or prices of the Bonds or over trading of the Bonds in the secondarymarket. Moreover, there is no assurance that a secondary market will be made in the Bonds. If there is a secondarymarket, the difference between the bid and asked prices of the Bonds may be greater than the difference between the bidand asked prices of bonds of comparable maturity and quality issued by more traditional municipal entities, as bondsof such entities are more generally bought, sold or traded in the secondary market.

The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by theUnderwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initialoffering price, including sales to dealers who may sell the Bonds into investment accounts.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OREFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT ALEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Securities Laws

No registration statement relating to the Bonds has been filed with the United States Securities and ExchangeCommission under the Securities Act of 1933, as amended, in reliance upon exemptions provided thereunder. The Bondshave not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained

5

therein, nor have the Bonds been registered or qualified under the securities acts of any other jurisdiction. The Districtassumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction inwhich the Bonds may be offered, sold, or otherwise transferred. This disclaimer of responsibility for registration orqualification for sale or other disposition of the Bonds should not be construed as an interpretation of any kind withregard to the availability of any exemption from securities registration or qualification provisions.

BOND INSURANCE

Bond Insurance Policy

Concurrently with the issuance of the Bonds, Assured Guaranty Municipal Corp. ("AGM") will issue its Municipal BondInsurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and intereston the Bonds when due as set forth in the form of the Policy included as an appendix to this Official Statement.

The Policy is not covered by any insurance security or guaranty fund established under New York, California,Connecticut or Florida insurance law.

Assured Guaranty Municipal Corp.

AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured GuarantyLtd. ("AGL"), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York StockExchange under the symbol "AGO". AGL, through its operating subsidiaries, provides credit enhancement products tothe U.S. and international public finance (including infrastructure) and structured finance markets and, as of October 1,2019, asset management services. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligatedto pay any debts of AGM or any claims under any insurance policy issued by AGM.

AGM's financial strength is rated "AA" (stable outlook) by S&P Global Ratings, a business unit of Standard & Poor'sFinancial Services LLC ("S&P"), "AA+" (stable outlook) by Kroll Bond Rating Agency, Inc. ("KBRA") and "A2" (stableoutlook) by Moody's Investors Service, Inc. ("Moody's"). Each rating of AGM should be evaluated independently. Anexplanation of the significance of the above ratings may be obtained from the applicable rating agency. The aboveratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawalat any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. Inaddition, the rating agencies may at any time change AGM's long-term rating outlooks or place such ratings on a watchlist for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, theassignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have anadverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal andscheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts wereinitially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurancepolicy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that theratings on such securities will not be revised or withdrawn.

Current Financial Strength Ratings

On December 19, 2019, KBRA announced it had affirmed AGM's insurance financial strength rating of "AA+" (stableoutlook). AGM can give no assurance as to any further ratings action that KBRA may take.

On November 7, 2019, S&P announced it had affirmed AGM's financial strength rating of "AA" (stable outlook). AGMcan give no assurance as to any further ratings action that S&P may take.

On August 13, 2019, Moody's announced it had affirmed AGM's insurance financial strength rating of "A2" (stableoutlook). AGM can give no assurance as to any further ratings action that Moody's may take.

For more information regarding AGM's financial strength ratings and the risks relating thereto, see AGL's Annual Reporton Form 10-K for the fiscal year ended December 31, 2019.

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Capitalization of AGM

At March 31, 2020:

• The policyholders' surplus of AGM was approximately $2,573 million.

• The contingency reserves of AGM and its indirect subsidiary Municipal Assurance Corp. ("MAC") (asdescribed below) were approximately $997 million. Such amount includes 100% of AGM's contingency reserveand 60.7% of MAC's contingency reserve.

• The net unearned premium reserves and net deferred ceding commission income of AGM and its subsidiaries(as described below) were approximately $1,997 million. Such amount includes (i) 100% of the net unearnedpremium reserve and deferred ceding commission income of AGM, (ii) the net unearned premium reserves andnet deferred ceding commissions of AGM's wholly owned subsidiary Assured Guaranty (Europe) plc ("AGE"),and (iii) 60.7% of the net unearned premium reserve of MAC.

The policyholders' surplus of AGM and the contingency reserves, net unearned premium reserves and deferred cedingcommission income of AGM and MAC were determined in accordance with statutory accounting principles. The netunearned premium reserves and net deferred ceding commissions of AGE were determined in accordance withaccounting principles generally accepted in the United States of America.

Incorporation of Certain Documents by Reference

Portions of the following documents filed by AGL with the Securities and Exchange Commission (the "SEC") that relateto AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof:

(i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (filed by AGL with the SEC onFebruary 28, 2020); and

(ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 (filed by AGL with the SECon May 8, 2020).

All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to,documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, asamended, excluding Current Reports or portions thereof "furnished" under Item 2.02 or Item 7.01 of Form 8-K, after thefiling of the last document referred to above and before the termination of the offering of the Bonds shall be deemedincorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing suchdocuments. Copies of materials incorporated by reference are available over the internet at the SEC's website athttp://www.sec.gov, at AGL's website at http://www.assuredguaranty.com, or will be provided upon request to AssuredGuaranty Municipal Corp.: 1633 Broadway, New York, New York 10019, Attention: Communications Department(telephone (212) 974-0100). Except for the information referred to above, no information available on or through AGL'swebsite shall be deemed to be part of or incorporated in this Official Statement.

Any information regarding AGM included herein under the caption "BOND INSURANCE - Assured GuarantyMunicipal Corp." or included in a document incorporated by reference herein (collectively, the "AGM Information")shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or throughincorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Informationso modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded.

Miscellaneous Matters

AGM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, AGM hasnot independently verified, makes no representation regarding, and does not accept any responsibility for the accuracyor completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, otherthan with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading"BOND INSURANCE".

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BOND INSURANCE RISK FACTORS

In the event of default of the payment of principal or interest with respect to the Bonds when all or some becomes due,any owner of the Bonds shall have a claim under the Policy for such payments.

In the event the Insurer is unable to make payment of principal and interest as such payments become due under thePolicy, the Bonds are payable solely from the moneys received pursuant to the applicable bond documents. In the eventthe Insurer becomes obligated to make payments with respect to the Bonds, no assurance is given that such event willnot adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds.

The long-term ratings on the Bonds are dependent in part on the financial strength of the Insurer and its claim payingability. The Insurer's financial strength and claims paying ability are predicated upon a number of factors which couldchange over time. No assurance is given that the long-term ratings of the Insurer and of the ratings on the Bonds insuredby the Insurer will not be subject to downgrade and such event could adversely affect the market price of the Bonds orthe marketability (liquidity) for the Bonds. See “BOND INSURANCE” and “RATINGS” herein.

The obligations of the Insurer are contractual obligations and in an event of default by the Insurer, the remedies availablemay be limited by applicable bankruptcy law or state law related to insolvency of insurance companies.

Neither the District nor the Underwriters have made independent investigation into the claims paying ability of theInsurer and no assurance or representation regarding the financial strength or projected financial strength of the Insureris given. Thus, when making an investment decision, potential investors should carefully consider the ability of theDistrict to pay principal and interest on the Bonds and the claims paying ability of the Insurer, particularly over the lifeof the investment. See “BOND INSURANCE” herein for further information provided by the Insurer and the Policy,which includes further instructions for obtaining current financial information concerning the Insurer.

RATINGS

The Bonds are expected to receive an insured rating of “AA” (stable outlook) from S&P Global Ratings (“S&P”), abusiness unit of Standard & Poor’s Financial Services LLC, and “A2” (stable outlook) from Moody’s Investors Service,Inc. (“Moody’s”) based upon the issuance of the Policy by the Insurer at the time of delivery of the Bonds. Theunderlying credit rating of the Bonds assigned by Moody’s Investors Service ( “Moody’s”) is “A3.”

An explanation of the significance of the foregoing ratings may only be obtained from S&P and Moody’s. The foregoingratings express only the view of S&P and Moody’s at the time the ratings are given. Furthermore, a security rating isnot a recommendation to buy, sell or hold securities. There is no assurance that the ratings will continue for any givenperiod of time or that they will not be revised downward or withdrawn entirely by S&P or Moody’s, if, in their judgment,circumstances so warrant. Any such downward change in or withdrawal of such ratings may have an adverse effect onthe market price of the Bonds.

The District is not aware of any ratings assigned the Bonds other than the ratings of S&P and Moody’s.

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OFFICIAL STATEMENT SUMMARY

The following material is a summary of certain information contained herein and is qualified in its entirety by the detailedinformation and financial statements appearing elsewhere in this Official Statement.

THE BONDS

The Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Harris County Municipal Utility District No. 278 (the“District”), a political subdivision of the State of Texas, islocated in Harris County, Texas. See “THE DISTRICT.”

The Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Harris County Municipal Utility District No. 278 UnlimitedTax Refunding Bonds, Series 2020, in the aggregate principalamount of $4,675,000 are dated June 1, 2020. Interest accruesfrom June 1, 2020, at the rates shown on the cover hereof andis payable on September 1, 2020 (three-month interestpayment), and on each March 1 and September 1 thereafteruntil the earlier of stated maturity or redemption. The Bondsmature on September 1 in each of the years and in the amountsshown on the cover page of this Official Statement. TheBonds maturing on and after September 1, 2026, are subject toredemption, in whole or in part, on September 1, 2025, or onany date thereafter, at a price equal to the principal amountthereof plus accrued interest to the date fixed for redemption. See “THE BONDS.” The Bonds will be issued pursuant to aBond Resolution (the “Bond Resolution”) adopted by theBoard of Directors of the District. The Bonds are being issuedunder the authority of Chapters 49 and 54 of the Texas WaterCode, as amended, Chapter 1207 of the Texas GovernmentCode, as amended, and City of Houston Ordinance No. 97-416.

Book-Entry-Only System . . . . . . . . . . . . . . . . . . . . The definitive Bonds will be initially registered and deliveredonly to Cede & Co., the nominee of DTC (defined herein),pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired indenominations of $5,000 or integral multiples thereof. Nophysical delivery of the Bonds will be made to the BeneficialOwners thereof. Principal of and interest on the Bonds will bepayable by the Paying Agent/Registrar (as defined herein) toCede & Co., which will make distribution of the amounts sopaid to the participating members of DTC for subsequentpayment to the Beneficial Owners of the Bonds (see “THEBONDS - Book-Entry-Only System”).

Source of Payment . . . . . . . . . . . . . . . . . . . . . . . . . Principal of and interest on the Bonds are payable from theproceeds of an annual ad valorem tax, without legal limitationas to rate or amount, levied against all taxable property locatedwithin the District. See “THE BONDS - Source of Payment,”“TAX DATA - Tax Rate Calculations,” and “INVESTMENTCONSIDERATIONS - Factors Affecting Taxable Values andTax Payments - Maximum Impact on District Tax Rates.” TheBonds are obligations of the District, and are not obligationsof the State of Texas, Harris County, Texas, the City ofHouston, Texas, or any entity other than the District.

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Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds of the sale of the Bonds, plus certain funds that arelawfully available to the District for such purpose, will beapplied to refund $4,600,000 of the principal amount of theDistrict's Unlimited Tax Refunding Bonds, Series 2013 (the“Series 2013 Refunding Bonds”). Collective reference ismade to such refunded bonds as the “Refunded Bonds.” Theproceeds of the sale of the Bonds will also be used to pay thecosts of issuance of the Bonds. The sale of the Bonds and therefunding of the Refunded Bonds will (i) reduce the District'sdebt service payments and (ii) provide present value savingsin the District's debt service.

Payment Record . . . . . . . . . . . . . . . . . . . . . . . . . . . The District has, in addition to the Series 2013 RefundingBonds, also issued Unlimited Tax Bonds, Series 1994 (the“Series 1994 Bonds”), Unlimited Tax Bonds, Series 1996 (the“Series 1996 Bonds”), Unlimited Tax Bonds, Series 1998 (the“Series 1998 Bonds”), Unlimited Tax Bonds, Series 2003 (the“Series 2003 Bonds”), Unlimited Tax Bonds, Series 2007 (the“Series 2007 Bonds”), Unlimited Tax Bonds, Series 2009 (the“Series 2009 Bonds”), Unlimited Tax Bonds, Series 2010 (the“Series 2010 Bonds”), Unlimited Tax Bonds, Series 2014 (the“Series 2014 Bonds”), Unlimited Tax Bonds, Series 2016 (the“Series 2016 Bonds”) and Unlimited Tax Bonds, Series 2019(the “Series 2019 Bonds”). The District has also issuedUnlimited Tax Refunding Bonds, Series 2004 (the “Series2004 Refunding Bonds”), the Series 2013 Refunding Bonds,Unlimited Tax Refunding Bonds, Series 2014 (the “Series2014 Refunding Bonds”), Unlimited Tax Refunding Bonds,Series 2015 (the “Series 2015 Refunding Bonds”) andUnlimited Tax Refunding Bonds, Series 2018 (the “Series2018 Refunding Bonds”) to refund certain outstanding bondsof the District. Collective reference is made in this OfficialStatement to all of such previously issued bonds as the “PriorBonds.” The District has never defaulted in the timelypayment of principal of or interest on the Prior Bonds. Beforethe issuance of the Bonds, the principal amount of the PriorBonds that had not been previously retired by the District was$51,640,000 (the “Outstanding Bonds”). After issuance of theBonds, the aggregate principal amount of the OutstandingBonds, less the portions thereof previously retired by theDistrict, and less the Refunded Bonds (collectively, the“Remaining Outstanding Bonds”) will be $47,040,000, andthe aggregate principal amount of the District's bondedindebtedness, including the Bonds, will be $51,715,000. See“DISTRICT DEBT - Debt Service Requirement Schedule.” The District financed its share of the cost of the acquisition orconstruction of components of its water supply anddistribution, wastewater collection and treatment, and stormsewer/detention system (collectively, the “System”) as isdescribed in this Official Statement under the caption “THESYSTEM” with portions of the proceeds of the sale of thePrior Bonds. The District expects to finance its share of thecost of acquisition or construction of additional components ofthe System with portions of the proceeds of the sale of bonds,if any, including reimbursement to some of its Developers, tobe issued by the District in the future, including the District’s

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approximately $5,455,000 Unlimited Tax Bonds, Series2020A that it expects to issue in approximately the fourthquarter of 2020. See “THE BONDS - Issuance of AdditionalDebt,” “INVESTMENT CONSIDERATIONS - Future Debt,”and “THE SYSTEM.”

Municipal Bond Insurance . . . . . . . . . . . . . . . . . . . Assured Guaranty Municipal Corp. (“AGM”). See “BONDINSURANCE” and “BOND INSURANCE RISKFACTORS.”

Municipal Bond Ratings . . . . . . . . . . . . . . . . . . . . . S&P Global Ratings (AGM insured) “AA” (stable outlook). Moody’s Investors Service, Inc. (AGM insured) “A2” (stableoutlook). Moody’s Investors Service, Inc. (underlying) “A3”. See “BOND INSURANCE” and “RATINGS.”

Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allen Boone Humphries Robinson LLP, Bond Counsel,Houston, Texas. See “LEGAL MATTERS.”

Verification Agent . . . . . . . . . . . . . . . . . . . . . . . . . Robert Thomas, CPA, LLC. See “VERIFICATION OFACCURACY OF MATHEMATICAL COMPUTATION.”

Qualified Tax-Exempt Obligations . . . . . . . . . . . . . The District will designate the Bonds as “qualified tax-exemptobligations for financial institutions.” See “TAX MATTERS -Qualified Tax-Exempt Obligations.”

THE DISTRICT

Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The District is a political subdivision of the State of Texas,created by Order of the Texas Water Commission, thepredecessor of the Texas Commission on EnvironmentalQuality (the “TCEQ”) on March 27, 1985. The Districtcontains approximately 1,230.1986 acres of land. The Districtis located entirely within Harris County, Texas, and entirelywithin the extraterritorial jurisdiction of the City of Houston,Texas (the “City”). The District is located approximatelytwenty miles northeast of the central business district of theCity, approximately five miles east of U.S. Highway 59. TheDistrict is composed of multiple tracts of land, with the easternportion of the District generally bounded on the south by WillClayton Parkway, on the north by Atascocita Road, and on theeast by Timber Forest Drive. Five tracts of land that arelocated within the District are generally bounded to the northby Will Clayton Parkway, on the west by Wilson Road and onthe south by Atascocita Road. Two other tracts of land thatare located within the District are generally bounded to thenorth by Atascocita Road, on the west by Ygnacio Road andon the east by Woodland Hills Drive. Two additional tracts ofland that are located within the District are generally boundedto the south by Will Clayton Parkway, on the west by WilsonRoad and on the east by Woodland Hills Drive. See“APPENDIX A - LOCATION MAP.”

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Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The rights, powers, privileges, authority and functions of theDistrict are established by Article XVI, Section 59 of theConstitution of the State of Texas, as amended, and thegeneral laws of the State of Texas pertaining to municipalutility districts, particularly Chapters 49 and 54 of the TexasWater Code, as amended. See “THE DISTRICT - General.”

Development and Home Construction . . . . . . . . . . Development and home construction accomplished in theDistrict to date include the completion of the development of3,203 single family residential lots, and 3,103 homes,including 22 homes under construction (see “Builders”below). In addition, a day care center, an office building,warehouses, two medical treatment and care facilities, andother retail and commercial enterprises, including gas stations,restaurants, auto parts and repair shops, a strip center, a boatstorage facility, a bank, a convenience store, a hardware storeand a car wash aggregating approximately 342,060 square feetof building area have been constructed on approximately 41.4acres of land within the District. The 241-unit Park at Tour 18Apartments (“Tour 18 Apartments”) are currently underconstruction on approximately 9.03 acres within the Districtwith completion anticipated in approximately October 2020.

According to the District's Engineer, underground water,sewer and drainage facilities and street paving have beenconstructed to serve the aforementioned total of 3,203 singlefamily residential lots on approximately 690.91 acres plattedas Timber Forest, Sections 1 and 4 through 7, Clayton’sCorner, Sections 1 through 4, Woodland Pines, Sections 1through 10, Laurel Place, Sections 1 through 3, AtascocitaTrace, Sections 1 through 6, Blackstone Creek, Sections 1through 4, and Villages at Tour 18, Sections 1 and 2.

The District also contains unrestricted reserves aggregating (i)approximately 73.89 acres that have been developed for multi-family residential or commercial usage consisting of (a)approximately 23.74 acres of reserves platted as TimberForest, Section 1, (b) approximately 39.51 acres of reservesplatted as Timber Forest, Section 2, (c) approximately 10.64acres of reserves platted as Timber Forest, Section 3, includingan aggregate of approximately 17.14 acres of street rights ofway located in such sections, (ii) approximately 63.19 totalacres that are located along Hunters Terrace Drive, onapproximately 9.03 acres of which the 241-unit Tour 18Apartments are currently under construction, approximately10.57 acres of which are expected to be developed for futuremulti-family residential usage, approximately 13.60 acres ofwhich are expected to be developed for future commercialusage and the remaining approximately 30.0 acres of whichare contained within storm water detention facilities andpipeline or electrical easements, and (iii) approximately 33.14additional acres of land used for storm water detentionfacilities. According to the District's Engineer, undergroundwater, sewer and drainage facilities and street paving to serve

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all of such unrestricted reserves have been constructed to (orare in close proximity to) the perimeters of the tracts whichthey serve. See “FUTURE DEVELOPMENT.”

Approximately 365.94 acres of land located in the District,exclusive of certain easements, rights-of-way, and other landnot available for development, are currently undeveloped. Approximately 3.40 of such acres that are available for futuredevelopment are owned by WP70, LP (defined below underthe caption “Developers and Other Principal Land Owners”). Humble Independent School District owns 81.13 acres of landlocated within the District which property is exempt fromtaxation and which is expected to construct schools andfacilities on such acreage. Approximately 14.45 of such acresthat are available for future development are owned by KBHome (defined below under the caption “Developers andOther Principal Land Owners”). It is anticipated that KBHome will develop such currently undeveloped acreage in thefuture as Villages at Tour 18, Section 3 (approximately 50single-family residential lots). Approximately 64.13 of suchacres that are available for future development are owned bySowell Interests-Atascocita, L.P. (“SIA”) (defined belowunder the caption “Developers and Other Principal LandOwners”). SIA has not reported any definitive developmentplan to the District covering any of such acres. As is reflectedon the District’s 2019 tax roll, approximately 159.71 of suchacres that are available for future development are owned byRancho Del Austin Partners, L.P. (“RDA”). Approximately10.52 of such acres that are available for future developmentare owned by KTB Holdings LP (“KTB”), which are expectedto be used for future commercial development. The remainingacres that are available for future development are owned bymultiple other parties, none of which has reported anydefinitive development plan to the District covering any ofsuch acres. Since no party, including WP70, KB Home, SIA,RDA or KTB has any obligation to the District to develop anyof such currently undeveloped acres at any particular pace orat all, the District cannot represent that any development willbe undertaken in the District in addition to the developmentundertaken therein to date, nor can the District represent theultimate utilization of such currently undeveloped land. TheDistrict is unaware of any specific development orconstruction of above ground improvements planned for anyof the reserves located in Timber Forest, Sections 1 through 3or the acres that are located along Hunters Terrace Drivedescribed above in addition to the development that has beenundertaken and the improvements that have been constructedor are under construction therein to date. The balance of theland within the District is located within street and drainagerights-of-way, District plant sites, or is otherwise not availablefor residential or commercial development. See “INVESTMENT CONSIDERATIONS - Factors AffectingTaxable Values and Tax Payments,” “FUTUREDEVELOPMENT” and “TAX DATA - Principal 2019Taxpayers.”

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The District financed the underground water distribution,wastewater collection and storm drainage facilities to serveTimber Forest, Sections 1 and 4 through 7, Clayton’s Corner,Sections 1 through 4, Laurel Place, Sections 1 through 3,Woodland Pines, Sections 1 through 10, Atascocita Trace,Sections 1 through 6, Blackstone Creek, Section 1 through 4,Villages at Tour 18, Sections 1 and 2, off-site waterdistribution to serve Woodland Pines; a wastewater treatmentplant expansion; wastewater collection and detention facilitiesto serve Villages at Tour 18; clearing and grubbing of Villagesat Tour 18, Section 1; water supply and storage facilities, awastewater treatment plant and lift station, clearing andgrubbing serving Villages at Tour 18, Section 2; stormwaterpollution prevention plans for Atascocita Trace, Sections 4through 6, Blackstone Creek, Sections 2 through 4, Villages atTour 18, Section 2, and Woodland Pines, Sections 9 and 10;the remaining costs of a 12-inch water line along Will ClaytonParkway, Phases 1, 1-A and 2; and a 16-inch water line alongAtascocita Road, Phases 1 and 2; Wastewater Treatment PlantExpansion; and land acquisition costs for the detention basinfor Villages at Tour 18 and Phase 1 Water Line/Joint UseEasements, and other facilities that are described in thisOfficial Statement under the caption “THE SYSTEM” withthe proceeds of the sale of the Prior Bonds. In addition to thecomponents of the System that the District has financed withthe proceeds of the sale of the Prior Bonds, the District expectsto finance the acquisition or construction of additionalcomponents of the System with portions of the proceeds of thesale of bonds, if any, including reimbursement to some of itsDevelopers, to be issued by the District in the future, includingthe District’s approximately $5,455,000 Unlimited Tax Bonds,Series 2020A that it expects to issue in approximately thefourth quarter of 2020. See “THE BONDS - Issuance ofAdditional Debt” and - “Use and Distribution of BondProceeds,” “INVESTMENT CONSIDERATIONS - FutureDebt” and “THE SYSTEM.”

Developers and Other Principal Land Owners . . . . The developer of Atascocita Trace (see “Development andHome Construction” above) is Élan Development, L.P.(“Élan”), a Texas limited partnership whose general partner isÉlan, L.C., a Texas limited liability corporation. Élan hascompleted the development of Atascocita Trace, Sections 1through 6 (611 single-family residential lots on approximately114.93 acres) located within the District. Anglia Homes isconstructing homes in Atascocita Trace as is described belowunder the caption “Builders.” Élan owns no additional landlocated within the District.

The developer of Villages at Tour 18, Section 2 (21single-family residential lots) located within the District (see“Development and Home Construction” above) is KB HomeLone Star, Inc. (“KB Home”). KB Home is constructinghomes in Villages at Tour 18, Section 2 as is described belowunder the caption “Builders.” KB Home owns approximately14.45 acres of land located within the District that are planned

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as future Villages of Tour 18, Section 3 (50 single-familyresidential lots). However, since KB Home has no obligationto the District to develop Villages of Tour 18, Section 3, theDistrict cannot represent that the development thereof will beundertaken.

The developer of Woodland Pines, Section 9 (120 single-family residential lots on approximately 23.46 acres) andSection 10 (106 single-family residential lots onapproximately 19.76 acres) is DS Woodland Pines, LLC (“DSWoodland Pines”). According to DS Woodland Pines, LibertyHomebuilders and Devon Street Homes are constructinghomes in Woodland Pines, Section 10 as is described belowunder the caption “Builders.” DS Woodland Pines owns noadditional land located in the District.

The developer of approximately 63.19 acres of land locatedwithin the District that are located along Hunters TerraceDrive that have been provided underground water, sewer anddrainage facilities and street paving to the perimeter thereofwas Austofield Partners No. I, Ltd., ("Austofield") a Texaslimited partnership whose general partner is Austofield No. I,LLC, a Texas limited liability corporation whose president isYousef Panahpour. ATA Development, LP ("ATA") a Texaslimited partnership whose general partner is ATA GPDevelopers, L.L.C., a Texas limited liability corporationwhose president is Yousef Panahpour, developed such land onbehalf of Austofield. Austofield has sold approximately 10.57of such acres that are expected to be utilized for futuremulti-family development to Creekstone Developments, Inc.("Creekstone"). Austofield has sold approximately 9.03 ofsuch acres being utilized for future multi-family developmentto The Park at Tour 18 LLC ("Tour 18"), on which the 241-unit Tour 18 Apartments are currently under construction. Austofield has conveyed approximately 13.60 of such acresexpected to be developed for future commercial usage toAtasca Lake Partners No I Ltd. ("ALP"), a Texas limitedpartnership whose general partner is Atasca Lake No I, L.L.C.,a Texas limited liability corporation whose president is YousefPanahpour. The remaining approximately 30.0 of such acresare contained within storm water detention facilities, pipelineor electrical easements (see "Development and HomeConstruction" above). ATA and Austofield do not own anyproperty in the District. Since ALP has no obligation to theDistrict to undertake any development of the approximately13.60 of such acres that are expected to be utilized for futurecommercial development that are owned by ALP; Creekstonehas no obligation to the District to undertake any developmentof the approximately 10.57 of such acres that are expected tobe utilized for future multi-family residential development thatare owned by Creekstone; and Tour 18 has no obligation to theDistrict to complete the construction of the 241-unit Tour 18Apartments on the approximately 9.03 of such acres that areowned by Tour 18; and since no party, including ALP,Creekstone or Tour 18, has any obligation to the District to

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undertake or complete the construction of any above-groundimprovements on any of such land, the District cannotrepresent that any development will be undertaken on any ofsuch land in addition to the development undertaken thereonto date, and cannot represent that any above-groundmulti-family residential, commercial or other above-groundimprovements will be constructed or completed on any of suchland.

The owner of approximately 64.13 currently undevelopedacres of land located within the District that are available forfuture development (see “Development and HomeConstruction” above) is Sowell Interests-Atascocita, L.P.(“SIA”), a Texas limited partnership whose general partner isSowell Atascocita, Inc., a Texas corporation whose presidentis Stephen L. Brown. SIA has not reported any definitive planto the District covering any of such acres. Since SIA has noobligation to the District to develop any of such currentlyundeveloped acres at any particular pace or at all, the Districtcannot represent that any development will be undertaken onany of such currently undeveloped acres.

The owner of approximately 3.40 currently undeveloped acresof land located within the District that are available for futuredevelopment is WP70, LP (“WP70"). However, WP70 has noobligation to the District to develop any of such currentlyundeveloped acres at any particular pace or at all, the Districtcannot represent that any development will be undertaken onany of such undeveloped acres.

Humble Independent School District owns 81.13 acres of landlocated within the District which property is exempt fromtaxation and which is expected to construct schools andfacilities on such acreage.

As is reflected on the District’s 2019 tax rolls, approximately159.71 of such acres that are available for future developmentare owned by Rancho Del Austin Partners, L.P. (“RDA”).Approximately 10.52 of such acres that are available for futuredevelopment are owned by KTB Holdings LP (“KTB”), whichare expected to be used for future commercial development.The remaining acres that are available for future developmentare owned by multiple other parties, none of which hasreported any definitive development plan to the Districtcovering any of such acres. Since none of RDA or any of suchother parties has any obligation to the District to develop anyof such currently undeveloped acres at any particular pace orat all, the District cannot represent that any development willbe undertaken on any of such currently undeveloped acres.

Collective reference is made in this Official Statement to Élan, KB Home, DS Woodland Pines and Tour 18 as the“Developers.”

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Builders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . According to Élan, homes which Anglia Homes is currentlyconstructing in Atascocita Trace range in size fromapproximately 1,169 to 2,099 square feet of living area and insales price from approximately $170,990 to $207,990.

According to KB Home, homes which it is currentlyconstructing in Villages of Tour 18 range in size fromapproximately 2,321 to 4,307 square feet of living area and insales price from approximately $215,001 to $482,000.

According to DS Woodland Pines, homes that LibertyHomebuilders and Devon Street Homes are currentlyconstructing in Woodland Pines range in size fromapproximately 1,582 to 4,104 square feet of living area and insales price from approximately $169,000 to $350,000.

Collective reference is made in this Official Statement toAnglia Homes, KB Home, Liberty Homebuilders and DevonStreet Homes as the “Builders.”

INVESTMENT CONSIDERATIONS

THE BONDS ARE SUBJECT TO CERTAIN INVESTMENT CONSIDERATIONS. AS SET FORTH IN THISOFFICIAL STATEMENT. PROSPECTIVE PURCHASERS SHOULD REVIEW THE ENTIRE OFFICIALSTATEMENT BEFORE MAKING AN INVESTMENT DECISION, INCLUDING PARTICULARLY THE SECTIONOF THE OFFICIAL STATEMENT ENTITLED “INVESTMENT CONSIDERATIONS.”

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SELECTED FINANCIAL INFORMATION(UNAUDITED)

2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $560,046,667(a)(As of January 1, 2019)See “TAX DATA” and “TAX PROCEDURES.”

Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $638,870,325(b)(As of March 1, 2020)See “TAX DATA” and “TAX PROCEDURES.”

Direct DebtRemaining Outstanding Bonds (as defined herein) . . . . . . . . . . . . . . . . . . . . . . . . $ 47,040,000The Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,675,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,715,000(c)

Estimated Overlapping Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,597,819(c)

Total Direct and Estimated Overlapping Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,312,819(c)

Direct Debt Ratio: as a percentage of 2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . 9.23%: as a percentage of Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . 8.09%

Direct and Estimated Overlapping Debt Ratio: as a percentage of 2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34%: as a percentage of Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . 12.57%

Debt Service Fund Balance Estimated as of Delivery of the Bonds . . . . . . . . . . . . . . . . . . $ 5,644,821(d)

General Fund Balance at April 3, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,147,799

2019 Tax Rate per $100 of Assessed ValuationDebt Service . . . . . . . . . . . . . . . . . $0.62Maintenance . . . . . . . . . . . . . . . . . 0.27Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.89(e)

Average Percentage of Total Tax Collections (2009-2018) . . . . . . . . . . . . . . . . . . . . . . . . 99.89%As of March 31, 2020.

Percentage of Tax Collections 2019 Levy.As of March 31, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.30%

Average Annual Debt Service Requirements of the Bonds and the Remaining Outstanding Bonds (2020-2037) . . . . . . . . . . . . . . . . . . . . . . $3,327,966

Maximum Annual Debt Service Requirement of the Bonds and the Remaining Outstanding Bonds (2037) . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,435,975

Tax Rate per $100 of Assessed Valuation Required to Pay Average AnnualDebt Service Requirements of the Bonds and the Remaining Outstanding Bonds (2020-2037) at 95% Tax CollectionsBased Upon 2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.63(e)Based Upon Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . $0.55(e)

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Tax Rate per $100 of Assessed Valuation Required to Pay Maximum Annual Debt Service Requirement of the Bonds and the Remaining Outstanding Bonds (2037) at 95% Tax CollectionsBased Upon 2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.65(e)Based Upon Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . $0.57(e)

Number of Single Family Residences (including 22 homes that are under construction). (See “BUILDERS”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,103

Completed Commercial Improvements - Approximately 342,060 Square Feet of Building Area (See “DEVELOPMENT AND HOME CONSTRUCTION.”)

Multi-Family Residential Improvements Currently Under Construction - 241-Unit Tour 18 Apartments(See “DEVELOPMENT AND HOME CONSTRUCTION.”)

__________________________________(a) As of January 1, 2019. All property in the District is valued on the tax rolls by the Harris County Appraisal

District (the “Appraisal District”) at 100% of assessed value as of January 1 of each year. The District's tax rollis certified by the Harris County Appraisal Review Board (the “Appraisal Review Board”).

(b) Provided by the Appraisal District for informational purposes only, this amount is an estimate of the value of alltaxable property located within the District as of March 1, 2020, and includes an estimate of values resulting fromthe construction of taxable improvements from January 1, 2019, through February 29, 2020. No taxes were leviedfor 2019 against any values added since January 1, 2019. The ultimate Assessed Valuation of any land andimprovements added from January 1, 2019, through December 31, 2019, which will be placed on the District's2020 tax roll, may vary significantly from such estimate once the Appraisal Review Board certifies the valuethereof in 2020. Moreover, the ultimate Assessed Valuation of any land and improvements added from January1, 2020, through February 29, 2020, which will be placed on the District's 2021 tax roll, may vary significantlyfrom such estimate once the Appraisal Review Board certifies the value thereof in 2021.

(c) See “DISTRICT DEBT” and “INVESTMENT CONSIDERATIONS - Future Debt.” In addition to thecomponents of the System the acquisition or construction of which the District has financed with portions of theproceeds of the Prior Bonds, the District expects to finance its share of the cost of acquisition or construction ofadditional components of the System with portions of the proceeds of the sale of bonds, if any, includingreimbursement to some of its Developers, to be issued by the District in the future, including the District’sapproximately $5,455,000 Unlimited Tax Bonds, Series 2020A that it expects to issue in approximately the fourthquarter of 2020. See THE BONDS - Issuance of Additional Debt,” “INVESTMENT CONSIDERATIONS -Future Debt,” and “THE SYSTEM.”

(d) Neither Texas law nor the Bond Resolution requires the District to maintain any particular sum in the DebtService Fund. Such sum gives effect to the payment by the District of its debt service requirements that were dueon March 1, 2020, and the contribution of $9,000 to the refunding of the Refunded Bonds. The District’sremaining debt service requirements for 2020, which are due on September 1, 2020, consist of $2,302,479 ofprincipal and interest on the Outstanding Bonds and a three-month interest payment on the Bonds and a principalpayment of $35,000 on the Bonds.

(e) The District has levied a debt service tax for 2019 in the amount of $0.62 per $100 of Assessed Valuation. TheDistrict also levied a maintenance tax of $0.27 per $100 of Assessed Valuation for 2019. Therefore, the District'scombined total tax for 2019 is $0.89 per $100 of Assessed Valuation. As is enumerated in this Official Statementunder the caption “TAX DATA - Estimated Overlapping Taxes,” the total of the 2019 tax levies of all overlappingtaxing units which levy taxes upon property located in the District, plus the District's 2019 rate, is $3.13285. TheDistrict's tax rate of $0.89 per $100 of Assessed Valuation and such total rate of $3.13285 per $100 of AssessedValuation are higher than the individual and total tax levies of some municipal utility districts in the Houstonmetropolitan area, including the area of the District, but are within the range of the individual and total levies ofmunicipal utility districts in the Houston metropolitan area and the area of the District which are in stages ofdevelopment comparable with the District. See “INVESTMENT CONSIDERATIONS - Factors AffectingTaxable Values and Tax Payments.”

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$4,675,000HARRIS COUNTY MUNICIPAL UTILITY DISTRICT NO. 278

UNLIMITED TAX REFUNDING BONDS, SERIES 2020

INTRODUCTION

This Official Statement provides certain information with respect to the issuance by Harris County Municipal UtilityDistrict No. 278 (the “District”) of its Unlimited Tax Refunding Bonds, Series 2020 (the “Bonds”). The Bonds areissued pursuant to the Texas Constitution, the general laws of the State of Texas, including particularly, Chapters 49and 54, Texas Water Code, as amended, and Chapter 1207 Texas Government Code, as amended, City of HoustonOrdinance No. 97-416, and a resolution authorizing issuance of the Bonds (the “Bond Resolution”), adopted by theBoard of Directors of the District (the “Board”).

Included in this Official Statement are descriptions of the Bonds, the plan of financing, and certain information aboutthe District and its finances. All descriptions of documents contained herein are only summaries and are qualified in theirentirety by reference to each such document. Copies of such documents may be obtained from Allen Boone HumphriesRobinson LLP, Phoenix Tower, 3200 Southwest Freeway, Suite 2600, Houston, Texas 77027, upon payment ofduplication costs. Certain capitalized terms used in this Official Statement have the same meanings assigned to suchterms in the Bond Resolution, except as otherwise indicated herein.

THE BONDS

General

The $4,675,000 Harris County Municipal Utility District No. 278 Unlimited Tax Refunding Bonds, Series 2020, aredated June 1, 2020, with interest payable on September 1, 2020 (three-month interest payment), and on each March 1and September 1 thereafter until the earlier of maturity or redemption. The Bonds are fully registered bonds maturingon September 1 of the years and in the amounts shown under “MATURITY SCHEDULE” on the cover page of thisOfficial Statement. Principal of the Bonds will be payable by the paying agent/registrar, initially, The Bank of New YorkMellon Trust Company, N.A., in Dallas, Texas, or any successor paying agent/registrar (the “Paying Agent,” “PayingAgent/Registrar,” or “Registrar”).

The Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York,New York (“DTC”), which will act as securities depository for the Bonds. Beneficial Owners of the Bonds will notreceive physical certificates representing the Bonds, but will receive a credit balance on the books of the nominees ofsuch Beneficial Owners. So long as Cede & Co. is the registered owner of the Bonds, the principal of and interest onthe Bonds will be paid by the Paying Agent directly to DTC, which will, in turn, remit such principal and interest to itsparticipants for subsequent disbursement to the Beneficial Owners of the Bonds as described below under “Book-Entry-Only System.”

Book-Entry-Only System

This section describes how ownership of the Bonds is to be transferred and how the principal of and interest on theBonds are to be paid to and credited by The Depository Trust Company, New York, New York, (“DTC”) while the Bondsare registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only Systemhas been provided by DTC for use in disclosure documents such as this Official Statement. The District and theFinancial Advisor believe the source of such information to be reliable, but neither of the District or the FinancialAdvisor takes any responsibility for the accuracy or completeness thereof.

The District cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds,or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt servicepayments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to theBeneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described inthis Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission,and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC.

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The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bondswill be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or suchother name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issuedfor each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New YorkBanking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the FederalReserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a“clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTCholds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipaldebt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”)deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securitiestransactions in deposited securities, through electronic computerized book-entry transfers and pledges between DirectParticipants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participantsinclude both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certainother organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income ClearingCorporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a DirectParticipant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+.” TheDTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More informationabout DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a creditfor the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”)is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive writtenconfirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmationsproviding details of the transaction as well as periodic statements of their holdings, from the Direct or Indirect Participantthrough which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are tobe accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event thatuse of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name ofDTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative ofDTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee donot effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds;DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which mayor may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping accountof their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to IndirectParticipants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangementsamong them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Ownersof Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respectto the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example,Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed toobtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their namesand addresses to the Registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’spractice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

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Payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorizedrepresentative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds andcorresponding detail information from the District or the Paying Agent/Registrar, on payable date in accordance withtheir respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governedby standing instructions and customary practices, as is the case with securities held for the accounts of customers inbearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the PayingAgent/Registrar, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is theresponsibility of the District or the Paying Agent/Registrar, disbursement of such payments to Direct Participants willbe the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility ofDirect and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonablenotice to the District or Paying Agent. Under such circumstances, in the event that a successor depository is notobtained, Bond certificates are required to be printed and delivered.

The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securitiesdepository). In that event, Bond certificates will be printed and delivered to DTC.

Use of Certain Terms in Other Sections of this Official Statement

In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System,references in other sections of this Official Statement to Registered Owners should be read to include the person forwhich the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTCand the Book-Entry-Only System, and, (ii) except as described above, notices that are to be given to Registered Ownersunder the Bond Resolution will be given only to DTC.

Record Date

The record date for payment of the interest on any regularly scheduled interest payment date is defined as the 15th dayof the month (whether or not a business day) preceding such interest payment date.

Assignments, Transfers and Exchanges

In the event the book-entry-only system is discontinued, the Bonds may be transferred, registered and assigned only onthe registration books of the Registrar, and such registration and transfer shall be without expense or service charge tothe Registered Owner, except for any tax or other governmental charges required to be paid with respect to suchregistration and transfer in accordance with the terms of the Bond Resolution. A Bond may be assigned by the executionof an assignment form on the Bonds or by other instrument of transfer and assignment acceptable to the Registrar. Atany time after the date of delivery of the Bonds to the Underwriters (the “Initial Delivery”), any Bond may be transferredor exchanged upon its presentment and surrender at the office of the Registrar, duly endorsed for transfer or accompaniedby an assignment duly executed by the Registered Owner. To the extent possible, new Bonds issued in an exchange ortransfer of Bonds will be delivered to the Registered Owner or assignee of the owner in not more than three (3) businessdays after the receipt of the request in proper form to transfer, exchange or replace the Bonds. New Bonds registered anddelivered in an exchange or transfer shall be in denominations of $5,000 or any integral multiple thereof for any onematurity and for a like aggregate principal amount as the Bond or Bonds surrendered for exchange or transfer. Neitherthe District nor the Registrar is required (1) to transfer or exchange any Bond during a period beginning at the openingof business on a Record Date and ending at the close of business on the next succeeding interest payment date, or (2)to transfer or exchange any Bond selected for redemption in whole or in part within thirty (30) calendar days of theredemption date. In the event the book-entry-only system is discontinued, the District has agreed to replace mutilated,destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds, or receipt of satisfactory evidence of suchdestruction, loss or theft and receipt by the District and the Registrar of security or indemnity to keep them harmless.The District will require payment of taxes, governmental charges and other expenses in connection with any suchreplacement.

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Redemption Provisions

The Bonds maturing on and after September 1, 2026, are subject to redemption and payment at the option of the District,in whole or from time to time in part, on September 1, 2025, or on any date thereafter, at a price equal to the principalamount thereof plus accrued interest to the date fixed for redemption. Notice of the exercise of the reserved right ofredemption will be given by the Registrar at least thirty (30) days prior to the redemption date by sending such noticeby first class mail to the Registered Owner of each Bond to be redeemed in whole or in part at the address shown on thebond register. If fewer than all of the Bonds are redeemed at any time, the particular maturities and amounts of Bondsto be redeemed shall be selected by the District in integral multiples of $5,000 within any one maturity. If fewer thanall of the Bonds within one maturity are to be redeemed, the Registrar shall select the Bonds to be redeemed by lot orother method of random selection (or by DTC in accordance with its procedures while the Bonds are in book-entry-onlyform). The Registered Owner of any Bond, all or a portion of which has been called for redemption, shall be requiredto present same to the Registrar for payment of the redemption price on the portion of the Bond so called for redemptionand issuance of a new Bond in the principal amount equal to the portion of such Bond not redeemed.

Replacement of Registrar

Provision is made in the Bond Resolution for replacement of the Paying Agent/Registrar. If the Paying Agent/Registraris replaced by the District, the new paying agent/registrar shall act in the same capacity as the previous PayingAgent/Registrar. In order to act as Registrar for the Bonds, any paying agent/registrar selected by the District shall bea national or state banking institution, a corporation organized and doing business under the laws of the United Statesof America or of any State, authorized under such laws to exercise trust powers, and subject to supervision orexamination by federal or state authority.

Authority for Issuance

District voters have authorized the issuance of $80,400,000 unlimited tax refunding bonds for the purpose of refundingoutstanding bonds of the District. The Bonds constitute the sixth issue of unlimited tax refunding bonds authorized bysuch elections. Following the issuance of the Bonds, an aggregate of $78,014,401.55 in bonds for refunding purposeswill remain authorized but unissued. See “Issuance of Additional Debt” below. The Bonds are issued by the Districtpursuant to the terms and provisions of the Bond Resolution; Article XVI, Section 59 of the Texas Constitution; Chapters49 and 54 of the Texas Water Code, as amended; City of Houston Ordinance No. 97-416; and Chapter 1207, TexasGovernment Code, as amended.

Source of Payment

The Bonds, the Remaining Outstanding Bonds (hereinafter defined) and such additional tax bonds as may hereafter beissued by the District are payable from the proceeds of an annual ad valorem tax, without legal limitation as to rate oramount, levied against all taxable property located within the District. In the Bond Resolution, the District covenantsto levy a sufficient tax to pay principal of and interest on the Bonds, with full allowance being made for delinquencies,costs of collections, Paying Agent/Registrar fees and Appraisal District fees. Tax proceeds, after deduction for collectioncosts, will be placed in the Debt Service Fund and used solely to pay principal of and interest on the Bonds, theRemaining Outstanding Bonds and on additional bonds payable from taxes which may be issued, and to pay PayingAgent/Registrar fees.

The Bonds are obligations of the District and are not the obligations of the State of Texas, Harris County, the City ofHouston, or any entity other than the District.

Payment Record

The District has, in addition to the Series 2013 Refunding Bonds, also issued Unlimited Tax Bonds, Series 1994 (the“Series 1994 Bonds”), Unlimited Tax Bonds, Series 1996 (the “Series 1996 Bonds”), Unlimited Tax Bonds, Series 1998(the “Series 1998 Bonds”), Unlimited Tax Bonds, Series 2003 (the “Series 2003 Bonds”), Unlimited Tax Bonds, Series

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2007 (the “Series 2007 Bonds”), Unlimited Tax Bonds, Series 2009 (the “Series 2009 Bonds”), Unlimited Tax Bonds,Series 2010 (the “Series 2010 Bonds”), Unlimited Tax Bonds, Series 2014 (the “Series 2014 Bonds”), Unlimited TaxBonds, Series 2016 (the “Series 2016 Bonds”) and Unlimited Tax Bonds, Series 2019 (the “Series 2019 Bonds”). TheDistrict has also issued Unlimited Tax Refunding Bonds, Series 2004 (the “Series 2004 Refunding Bonds”), the Series2013 Refunding Bonds, Unlimited Tax Refunding Bonds, Series 2014 (the “Series 2014 Refunding Bonds”), UnlimitedTax Refunding Bonds, Series 2015 (the “Series 2015 Refunding Bonds”) and Unlimited Tax Refunding Bonds, Series2018 (the “Series 2018 Refunding Bonds”) to refund certain outstanding bonds of the District. Collective reference ismade in this Official Statement to all of such previously issued bonds as the “Prior Bonds.” The District has neverdefaulted in the timely payment of principal of or interest on the Prior Bonds. Before the issuance of the Bonds, theprincipal amount of the Prior Bonds that had not been previously retired by the District was $51,640,000 (the“Outstanding Bonds”). After issuance of the Bonds, the aggregate principal amount of the Outstanding Bonds, less theportions thereof previously retired by the District, and less the Refunded Bonds (collectively, the “RemainingOutstanding Bonds”) will be $47,040,000, and the aggregate principal amount of the District's bonded indebtedness,including the Bonds, will be $51,715,000. See “DISTRICT DEBT - Debt Service Requirement Schedule.” The Districtfinanced its share of the cost of the acquisition or construction of components of its water supply and distribution,wastewater collection and treatment, and storm sewer/detention system (collectively, the “System”) as is described inthis Official Statement under the caption “THE SYSTEM” with portions of the proceeds of the sale of the Prior Bonds. The District expects to finance its share of the cost of acquisition or construction of additional components of the Systemwith portions of the proceeds of the sale of bonds, if any, including reimbursement to some of its Developers, to beissued by the District in the future, including the District’s approximately $5,455,000 Unlimited Tax Bonds, Series2020A that it expects to issue in approximately the fourth quarter of 2020. See “THE BONDS - Issuance of AdditionalDebt,” “INVESTMENT CONSIDERATIONS - Future Debt,” and “THE SYSTEM.”

Issuance of Additional Debt

The District's voters have authorized the issuance of a total of $80,400,000 unlimited tax bonds for the purpose ofacquiring or constructing water, sanitary sewer and drainage facilities and could authorize additional amounts. TheDistrict currently has $19,165,000 of unlimited tax bonds authorized but unissued for said improvements and facilities. The District’s voters have also authorized a total of $80,400,000 unlimited tax refunding bonds for the purpose ofrefunding outstanding bonds of the District and could authorize additional amounts. Following the issuance of the Bonds,the District will have $78,014,401.55 of unlimited tax refunding bonds authorized but unissued.

The Bond Resolution imposes no limitation on the amount of additional parity bonds which may be authorized forissuance by the District's voters or the amount ultimately issued by the District.

The District also is authorized by statute to engage in fire-fighting activities, including the issuing of bonds payable fromtaxes for such purpose. Before the District could issue fire-fighting bonds payable from taxes, the following actionswould be required: (a) authorization of a detailed master plan and bonds for such purpose by the qualified voters in theDistrict; (b) approval of the master plan and issuance of bonds by the TCEQ; and (c) approval of bonds by the AttorneyGeneral of Texas. The District does not provide fire protection service, and the Board has not considered calling suchan election at this time. Issuance of bonds for fire-fighting activities could dilute the investment security for the Bonds.

Financing Road Facilities

Pursuant to Chapter 54 of the Water Code, a municipal utility district may petition the TCEQ for the power to issuebonds supported by property taxes to finance roads. Before the District could issue such bonds, the District would berequired to receive a grant of such power from the TCEQ, authorization from the District’s voters to issue such bonds,and approval of the bonds by the Attorney General of Texas. The District has not considered filing an application to theTCEQ for “road powers” or calling such an election at this time. Issuance of bonds for roads could dilute the investmentsecurity for the Bonds.

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Financing Recreational Facilities

The District is authorized to develop and finance with property taxes certain recreational facilities after a district electionhas been successfully held to approve the issuance of bonds payable from taxes and/or a maintenance tax to supportrecreational facilities.

The District is authorized to issue bonds payable from an ad valorem tax to pay for the development and maintenanceof recreational facilities if (i) the District duly adopts a plan for the facilities; (ii) the bonds are authorized at an election;(iii) the bonds payable from any source do not exceed 1% of the value of the taxable property in the District at the timeof issuance of the bonds, or an amount greater than the estimated cost of the plan, whichever amount is smaller; (iv) theDistrict obtains any necessary governmental consents allowing the issuance of such bonds; (v) the issuance of the bondsis approved by the TCEQ in accordance with its rules with respect to same; and (vi) the bonds are approved by theAttorney General of Texas. The District may issue bonds for such purposes payable solely from net operating revenueswithout an election. In addition, the District is authorized to levy an operation and maintenance tax to supportrecreational facilities at a rate not to exceed 10 cents per $100 of assessed valuation of taxable property in the District,after such tax is approved at an election. Said maintenance tax is in addition to any other maintenance tax authorizedto be levied by the District.

The District has not called an election for such purposes but could do so in the future.

Issuance of bonds for recreational facilities could dilute the investment security for the Bonds.

No Arbitrage

The District certifies that, based upon all facts and estimates now known or reasonably expected to be in existence onthe date the Bonds are delivered and paid for, the District reasonably expects that the proceeds of the Bonds will not beused in a manner that would cause the Bonds, or any portion of the Bonds, to be “arbitrage bonds” under the InternalRevenue Code of 1986, as amended (the “Code”), and the regulations prescribed thereunder.

Furthermore, all officers, employees and agents of the District have been authorized and directed to provide certificationsof facts and estimates that are material to the reasonable expectations of the District as of the date the Bonds are deliveredand paid for. In particular, all or any officers of the District are authorized to certify to the facts and circumstances andreasonable expectations of the District on the date the Bonds are delivered and paid for regarding the amount and useof the proceeds of the Bonds. Moreover, the District covenants that it shall make such use of the proceeds of the Bonds,regulate investment of proceeds of the Bonds and take such other and further actions and follow such procedures,including, without limitation, calculating the yield on the Bonds, as may be required so that the Bonds shall not become“arbitrage bonds” under the Code and the regulations prescribed from time to time thereunder.

Annexation

Under existing Texas law, since the District lies wholly within the extraterritorial jurisdiction of the City of Houston,the District must conform to a City of Houston consent ordinance. Generally, the District may be annexed by the Cityof Houston without the District's consent, and the City cannot annex territory within the District unless it annexes theentire District; however, the City may not annex the District unless (i) such annexation has been approved by a majorityof those voting in an election held for that purpose within the area to be annexed, and (ii) if the registered voters in thearea to be annexed do not own more than 50 percent of the land in the area, a petition has been signed by more than 50percent of the landowners consenting to the annexation. Notwithstanding the preceding sentence, the described electionand petition process does not apply during the term of a strategic partnership agreement between the City and the Districtspecifying the procedures for full purpose annexation of all or a portion of the District. See "Strategic PartnershipAgreement," below, for a description of the terms of the Strategic Partnership Agreement between the City and theDistrict.

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If the District is annexed, the City of Houston will assume the District's assets and obligations (including the Bonds) anddissolve the District. Annexation of territory by the City of Houston is a policy-making matter within the discretion ofthe Mayor and City Council of the City of Houston, and therefore, the District makes no representation that the City ofHouston will ever annex the District and assume its debt. Moreover, no representation is made concerning the abilityof the City of Houston to make debt service payments should annexation occur.

Strategic Partnership Agreement

The District and the City of Houston (the “City”) have entered into a Strategic Partnership Agreement dated effectiveDecember 12, 2008 (the “SPA”), amended and restated on December 5, 2017, and further amended on December 11,2019, pursuant to Chapter 43 of the Texas Local Government Code. The SPA provides for a “limited purposeannexation” for that portion of the District which is developed for retail and commercial purposes in order to applycertain City health, safety, planning and zoning ordinances within the District. Areas of residential development withinthe District are not subject to the limited purpose annexation. The SPA, as amended on December 11, 2019, alsoprovides that the City will not annex the District for “full purposes” for at least thirty (30) years from the effective dateof the SPA and then only if the District’s Board of Directors requests such annexation. Also, as a condition to fullpurpose annexation, any unpaid reimbursement obligations due to a developer by the District for water, wastewater anddrainage facilities must be assumed by the City to the maximum extent permitted by TCEQ rules.

As of the effective date of the SPA, the City is authorized to impose the one percent (1%) City sales and use tax withinthe portion of the District included in the limited purpose annexation. Such portion includes primarily the approximately39.51 acres of retail and commercial development within the District. The City pays to the District an amount equal toone half (½) of all sales and use tax revenue generated within such area of the District and received by the City from theComptroller of Public Accounts of the State of Texas (the “Sales Tax Revenue”). Pursuant to State law, the District isauthorized to use Sales Tax Revenue generated under the SPA for any lawful purpose. None of the anticipated SalesTax Revenue is pledged toward the payment of principal and interest on the Bonds or the Outstanding Bonds.

Consolidation

The District has the legal authority to consolidate with other districts and, in connection therewith, to provide for theconsolidation of its water and wastewater systems with the water and wastewater systems of the district or districts withwhich it is consolidating, subject to voter approval. In their consolidation agreement, the consolidating districts mayagree to assume each other’s bonds, notes and other obligations. If each district assumes the other’s bonds, notes andother obligations, taxes may be levied uniformly on all taxable property within the consolidated district in payment ofsame. If the districts do not assume each other’s bonds, notes and other obligations, each district's taxes are levied onproperty in each of the original districts to pay said debts created by the respective original district as if no consolidationhad taken place. No representation is made concerning whether the District will consolidate with any other district, butthe District currently has no plans to do so.

Registered Owners' Remedies

Pursuant to Texas law, the Bond Resolution provides that, in the event the District defaults in the payment of theprincipal of or interest on any of the Bonds when due, fails to make deposits required by the Bond Resolution into theDebt Service Fund, or defaults in the observance or performance of any of the other covenants, conditions or obligationsset forth in the Bond Resolution, any Registered Owner shall be entitled to seek a writ of mandamus from a court ofcompetent jurisdiction compelling and requiring the District to make such payments or to observe and perform suchcovenants, obligations or conditions. Such right is in addition to other rights the Registered Owners may be providedby the laws of the State of Texas.

In the event of default in the payment of principal of or interest on the Bonds, the Registered Owners may seek a writof mandamus requiring the District to levy adequate taxes to make such payments. Except for the remedy of mandamus,the Bond Resolution does not specifically provide for remedies to a Registered Owner in the event of a District default,nor does it provide for the appointment of a trustee to protect and enforce the interests of the Registered Owners. Thereis no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may haveto be relied upon from year to year. Even if the Registered Owners could obtain a judgment against the District, sucha judgment could not be enforced by direct levy and execution against the District's property. Further, the Registered

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Owners cannot themselves foreclose on the property of the District or sell property within the District in order to paythe principal of or interest on the Bonds. The enforceability of the rights and remedies of the Registered Owners maybe further limited by laws relating to bankruptcy, reorganization or other similar laws of general application affectingthe rights of creditors of political subdivisions such as the District. For example, a Chapter 9 bankruptcy proceeding bythe District could delay or eliminate payment of principal or interest to the Registered Owners. See “BankruptcyLimitation to Registered Owners' Rights” below. Further, certain traditional legal remedies also may not be available. See “INVESTMENT CONSIDERATIONS - Registered Owners’ Remedies and Bankruptcy.”

Bankruptcy Limitation to Registered Owners' Rights

The enforceability of the rights and remedies of the Registered Owners may be limited by laws relating to bankruptcy,reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions suchas the District. Subject to the requirements of Texas law, the District may voluntarily proceed under Chapter 9 of theFederal Bankruptcy Code, 11 U.S.C. 901-946, if the District: (1) is generally authorized to file for federal bankruptcyprotection by State law; (2) is insolvent or unable to meet its debts as they mature; (3) desires to effect a plan to adjustsuch debts; and (4) has either obtained the agreement of or negotiated in good faith with its creditors or is unable tonegotiate with its creditors because negotiation is impracticable. Under Texas law, a municipal utility district such asthe District must obtain the approval of the TCEQ prior to filing for bankruptcy. The TCEQ must investigate the financialcondition of the District and will authorize the District to proceed only if the TCEQ determines that the District has fullyexercised its rights and powers under Texas law and remains unable to meet its debts and other obligations as theymature.

If the District decides in the future to proceed voluntarily under the Federal Bankruptcy Code, the District would developand file a plan for the adjustment of its debts and the Bankruptcy Court would confirm the District's plan if: (1) the plancomplies with the applicable provisions of the Federal Bankruptcy Code; (2) all payments to be made in connection withthe plan are fully disclosed and reasonable; (3) the District is not prohibited by law from taking any action necessary tocarry out the plan; (4) administrative expenses are paid in full; and (5) the plan is in the best interests of creditors andis feasible. If such a plan were confirmed by the bankruptcy court, it could, among other things, affect a RegisteredOwner by reducing or eliminating the amount of indebtedness, deferring or rearranging the debt service schedule,reducing or eliminating the interest rate, modifying or abrogating collateral or security arrangements, substituting (inwhole or in part) other securities, and otherwise compromising and modifying the rights and remedies of such RegisteredOwner's claim against the District.

The District may not be placed into bankruptcy involuntarily.

Legal Investment and Eligibility to Secure Public Funds in Texas

The following is quoted from Section 49.186 of the Texas Water Code, and is applicable to the District:

“(a) All bonds, notes, and other obligations issued by a district shall be legal and authorized investments for allbanks, trust companies, building and loan associations, savings and loan associations, insurance companies of all kindsand types, fiduciaries, and trustees, and for all interest and sinking funds and other public funds of the state, and allagencies, subdivisions, and instrumentalities of the state, including all counties, cities, towns, villages, school districts,and all other kinds and types of districts, public agencies, and bodies politic.

(b) A district's bonds, notes, and other obligations are eligible and lawful security for all deposits of public fundsof the state, and all agencies, subdivisions, and instrumentalities of the state, including all counties, cities, towns,villages, school districts, and all other kinds and types of districts, public agencies, and bodies politic, to the extent ofthe market value of the bonds, notes, and other obligations when accompanied by any unmatured interest couponsattached to them.”

The Public Funds Collateral Act (Chapter 2257, Texas Government Code) also provides that bonds of the District(including the Bonds) are eligible as collateral for public funds.

27

No representation is made that the Bonds will be suitable for or acceptable to financial or public entities for investmentor collateral purposes. No representation is made concerning other laws, rules, regulations or investment criteria whichapply to or which might be utilized by any of such persons or entities to limit the acceptability or suitability of the Bondsfor any of the foregoing purposes. Prospective purchasers are urged to carefully evaluate the investment quality of theBonds as to the suitability or acceptability of the Bonds for investment or collateral purposes.

Defeasance

The Bond Resolution provides that the District may discharge its obligations to the Registered Owners of any or all ofthe Bonds to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texaslaw, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the Stateof Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on the Bonds to maturityor redemption or (ii) by depositing with any place of payment (paying agent) of the Bonds or other obligations of theDistrict payable from revenues or from ad valorem taxes or both or with a trust company or commercial bank designatedin the proceedings authorizing such discharge, amounts sufficient to provide for the payment and/or redemption of theBonds; provided that such deposits may be invested and reinvested only in (a) direct noncallable obligations of theUnited States of America, including obligations that are unconditionally guaranteed by the United States of America,(b) noncallable obligations of an agency or instrumentality of the United States, including obligations that areunconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of theDistrict adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investmentquality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) non-callableobligations of a state or an agency or a county, municipality, or other political subdivision of a state that have beenrefunded and that, on the date the governing body of the District adopts or approves the proceedings authorizing theissuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not lessthan AAA or its equivalent. The foregoing obligations may be in book-entry form and shall mature and/or bear interestpayable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemptionof the Bonds. If any of such Bonds are to be redeemed prior to their respective dates of maturity, provision must havebeen made for giving notice of redemption as provided in the Bond Resolution.

Upon such deposit as described above, such Bonds shall no longer be regarded as outstanding or unpaid. After firmbanking and financial arrangements for the discharge and final payment or redemption of the Bonds have been made asdescribed above, all rights of the District to initiate proceedings to call the Bonds for redemption or take any other actionamending the terms of the Bonds are extinguished; provided, however, that the right to call the Bonds for redemptionis not extinguished if the District: (i) in the proceedings providing for the firm banking and financial arrangements,expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of that right to theowners of the Bonds immediately following the making of the firm banking and financial arrangements; and (iii) directsthat notice of the reservation be included in any redemption notices that it authorizes.

There is no assurance that the current law will not be changed in the future in a manner which would permit investmentsother than those described above to be made with amounts deposited to defease the Bonds. Because the Bond Resolutiondoes not contractually limit such investments, Registered Owners may be deemed to have consented to defeasance withsuch other investments, notwithstanding the fact that such investments may not be of the same investment quality ofthose currently permitted under Texas law.

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PLAN OF FINANCING

Use of Bond Proceeds

Proceeds of the sale of the Bonds, plus certain funds that are lawfully available to the District for such purpose, will beapplied to refund $4,600,000 of the principal amount of the District's Unlimited Tax Refunding Bonds, Series 2013 (the“Series 2013 Refunding Bonds”). Collective reference is made to such refunded bonds as the “Refunded Bonds.” Theproceeds of the sale of the Bonds will also be used to pay the costs of issuance of the Bonds. The sale of the Bonds andthe refunding of the Refunded Bonds will (i) reduce the District's debt service payments and (ii) provide present valuesavings in the District's debt service.

The Refunded Bonds

The principal amounts and maturity dates (or mandatory redemption amounts and dates, as applicable) of the RefundedBonds are set forth below.

Refunded Bonds

Series 2013 Refunding BondsMaturity Principal Amount

2022 $395,0002023 410,0002024 405,0002025 425,0002026 440,0002027 460,0002028 480,0002029 505,0002030 525,0002031 555,000

$4,600,000

Redemption Date: 9/1/2020

Aggregate Principal Amount of Refunded Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,600,000

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Escrow Agreement

The Refunded Bonds, and the interest due thereon, are to be paid on their scheduled interest payment date until finalpayment or their redemption date from funds to be deposited with The Bank of New York Mellon Trust Company, N.A.,in Dallas, Texas (the “Escrow Agent”).

The Bond Resolution provides that the District and the Escrow Agent will enter into an escrow agreement (the “EscrowAgreement”). The Bond Resolution further provides that from the proceeds of the sale of the Bonds, along with certainother legally available funds of the District, the District will deposit with the Escrow Agent the amount necessary toaccomplish the discharge and final payment of the Refunded Bonds. Such funds will be held by the Escrow Agent in asegregated escrow account (the “Escrow Fund”) and used to purchase United States Treasury Obligations (the “EscrowedSecurities”) or other obligations authorized by Chapter 1207, Texas Government Code, the proceeds of which will be usedto redeem the Refunded Bonds on their redemption date. See “VERIFICATION OF ACCURACY OF MATHEMATICALCOMPUTATIONS.” Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principalof and interest on the Refunded Bonds and will not be available to pay principal of and interest on the Bonds or theRemaining Outstanding Bonds.

Defeasance of the Refunded Bonds

By the deposit of certain proceeds of the Bonds, the Escrowed Securities, and cash, if any, with the Escrow Agent pursuantto the Escrow Agreement, the District will have effected the defeasance of the Refunded Bonds pursuant to the terms ofthe resolutions authorizing the issuance of the Refunded Bonds. In the opinion of Bond Counsel, as a result of suchdeposit, and in reliance upon the Verification Report of Robert Thomas, CPA, LLC, firm banking and financialarrangements will have been made for the discharge and final payment of the Refunded Bonds pursuant to the EscrowAgreement, and such Refunded Bonds will be deemed under Texas law to be fully paid and no longer outstanding, exceptfor the purpose of being paid from the funds provided therefor in the Escrow Fund.

The Non-Refunded Bonds (Remaining Outstanding Bonds)

The District has, in addition to the Series 2013 Refunding Bonds, also issued Unlimited Tax Bonds, Series 1994 (the“Series 1994 Bonds”), Unlimited Tax Bonds, Series 1996 (the “Series 1996 Bonds”), Unlimited Tax Bonds, Series 1998(the “Series 1998 Bonds”), Unlimited Tax Bonds, Series 2003 (the “Series 2003 Bonds”), Unlimited Tax Bonds, Series2007 (the “Series 2007 Bonds”), Unlimited Tax Bonds, Series 2009 (the “Series 2009 Bonds”), Unlimited Tax Bonds,Series 2010 (the “Series 2010 Bonds”), Unlimited Tax Bonds, Series 2014 (the “Series 2014 Bonds”), Unlimited TaxBonds, Series 2016 (the “Series 2016 Bonds”) and Unlimited Tax Bonds, Series 2019 (the “Series 2019 Bonds”). TheDistrict has also issued Unlimited Tax Refunding Bonds, Series 2004 (the “Series 2004 Refunding Bonds”), the Series 2013Refunding Bonds, Unlimited Tax Refunding Bonds, Series 2014 (the “Series 2014 Refunding Bonds”), Unlimited TaxRefunding Bonds, Series 2015 (the “Series 2015 Refunding Bonds”) and Unlimited Tax Refunding Bonds, Series 2018(the “Series 2018 Refunding Bonds”) to refund certain outstanding bonds of the District. Collective reference is made inthis Official Statement to all of such previously issued bonds as the “Prior Bonds.” The District has never defaulted in thetimely payment of principal of or interest on the Prior Bonds. Before the issuance of the Bonds, the principal amount ofthe Prior Bonds that had not been previously retired by the District was $51,640,000 (the “Outstanding Bonds”). Afterissuance of the Bonds, the aggregate principal amount of the Outstanding Bonds, less the portions thereof previously retiredby the District, and less the Refunded Bonds (collectively, the “Remaining Outstanding Bonds”) will be $47,040,000, andthe aggregate principal amount of the District's bonded indebtedness, including the Bonds, will be $51,715,000. See“DISTRICT DEBT - Debt Service Requirement Schedule.”

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31

Sources and Uses of Funds

The proceeds derived from the sale of the Bonds will be applied as follows:

SOURCES OF FUNDS:

Par Amount of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,675,000.00Plus: Original Issue Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,358.50

Accrued Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,533.33District Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000.00

Total Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,900,891.83

USE OF FUNDS:

Deposit with Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,682,000.44Deposit Accrued Interest to Debt Service Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,533.33Expenses: Underwriters Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,119.50 Municipal Bond Insurance and Other Issuance Expenses . . . . . . . . . . . . . . . . . . . . . . . . 173,238.56Total Uses of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,900,891.83

INVESTMENT CONSIDERATIONS

General

The Bonds, which are obligations of the District and not of the State of Texas, Harris County, Texas, the City ofHouston, or any political subdivision other than the District, will be secured by an annual ad valorem tax, without legallimitation as to rate or amount, levied against all taxable property located within the District. Therefore, the ultimatesecurity for payment of the principal of and interest on the Bonds depends upon the ability of the District to collect fromthe property owners within the District taxes levied against all taxable property located within the District or, in the eventtaxes are not collected and foreclosure proceedings are instituted by the District, upon the value of the taxable propertywith respect to taxes levied by the District and by other taxing authorities. The District makes no representations thatover the life of the Bonds the property within the District will maintain a value sufficient to justify continued paymentof taxes by the property owners. The potential increase in taxable valuation of District property is directly related to theeconomics of the residential housing industry, not only due to general economic conditions, but also due to the particularfactors discussed below.

Factors Affecting Taxable Values and Tax Payments

Economic Factors: A substantial percentage of the assessed valuation of the property located within theDistrict is attributable to the current market value of (i) the single-family residences that have been constructedwithin the District, (ii) the single-family residential lots that have been developed by the developers of theDistrict, and of the developed lots which have been sold by the developers to home building companies for theconstruction of primary residences, and (iii) the commercial/retail buildings that have been constructed withinthe District. The market value of such homes and lots is related to general economic conditions affecting thedemand for residences. Demand for lots of this type and the construction of residential dwellings thereon andthe construction of commercial/retail buildings can be significantly affected by factors such as interest rates,credit availability, construction costs, energy availability and cost and the prosperity and demographiccharacteristics of the urban center toward which the marketing of lots is directed. Further declines in the priceof oil could adversely affect job stability, wages and salaries, thereby negatively affecting the demand forhousing and the values of existing homes. Decreased levels of construction activity would tend to restrict thegrowth of property values in the District or could adversely impact such values. Recent changes in federal taxlaw limiting deductions for ad valorem taxes may adversely affect the demand for housing and the pricesthereof. Were the District to experience a significant number of residential foreclosures, the value of all homes

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within the District could be adversely affected. Although, as is described in this Official Statement under thecaptions “DEVELOPMENT AND HOME CONSTRUCTION,” and “DEVELOPERS AND OTHERPRINCIPAL LAND OWNERS” (i) the District contains a total of 3,203 fully-developed single-familyresidential lots and other property that have been provided water distribution, wastewater collection and stormdrainage facilities and street paving, and wastewater treatment and water supply capacity have been securedfor the District, as is described in this Official Statement under the caption “THE SYSTEM,” (ii) as of March1, 2020, the District contained 3,103 single-family homes (including 22 homes under construction), (iii) theBuilders are constructing homes within the District as is described in this Official Statement under the caption“BUILDERS,” and (iv) commercial/retail buildings aggregating approximately 342,060 square feet of buildingarea have been constructed within the District, and the 241-unit Tour 18 Apartments are currently underconstruction within the District, the District cannot predict the pace or magnitude of any future developmentor home construction in the District other than that which has occurred to date. The District cannot representthat additional single-family or multi-family residential or commercial/retail development will be undertakenon any land located within the District, that additional homes or above-ground commercial/retail buildings orany multi-family units will be constructed within the District, or the level of occupancy of any of suchimprovements.

National Economy: There has been a downturn in new housing construction in the United States, resultingin a decline in national housing market values. Although, as is described in this Official Statement under thecaptions “DEVELOPMENT AND HOME CONSTRUCTION,” and “DEVELOPERS AND OTHERPRINCIPAL LAND OWNERS” (i) the District contains a total of 3,203 fully-developed single-familyresidential lots and other property that have been provided water distribution, wastewater collection and stormdrainage facilities and street paving, and wastewater treatment and water supply capacity have been securedfor the District, as is described in this Official Statement under the caption “THE SYSTEM,” (ii) as of March1, 2020, the District contained 3,103 single-family homes (including 22 homes under construction), (iii) theBuilders are constructing homes within the District as is described in this Official Statement under the caption“BUILDERS,” and (iv) commercial/retail buildings aggregating approximately 342,060 square feet of buildingarea have been constructed within the District, and the 241-unit Tour 18 Apartments are currently underconstruction within the District, the District cannot predict the pace or magnitude of any future developmentor home construction in the District other than that which has occurred to date. The District cannot representthat additional single-family or multi-family residential or commercial/retail development will be undertakenon any land located within the District, that additional homes or above-ground commercial/retail buildings orany multi-family units will be constructed within the District, or the level of occupancy of any of suchimprovements. The District cannot predict what impact, if any, a downturn in the local housing market and acontinued downturn in the national housing and financial markets may have on the Houston market generallyand the District specifically, or the maintenance of assessed values in the District.

Credit Markets and Liquidity in the Financial Markets: Interest rates and the availability of mortgage anddevelopment funding have a direct impact on single-family, apartment and commercial development activityand the construction of homes, apartments and commercial buildings, particularly short-term interest rates atwhich developers are able to obtain financing for development costs and at which homebuilders are able tofinance the construction of new homes for sale and at which apartment and commercial developers are able tofinance new apartments or commercial buildings. Interest rate levels may affect the ability of a developer withundeveloped property to undertake and complete development activities within the District and of homebuildersto initiate the construction of new homes for sale and of apartment and commercial developers to initiate theconstruction of new apartments or commercial buildings. Because of the numerous and changing factorsaffecting the availability of funds, particularly liquidity in the national credit markets, the District is unable toassess the future availability of such funds for continued development and/or home construction or theconstruction of new apartments or commercial buildings within the District. In addition, since the District islocated approximately 20 miles northeast of the central downtown business district of the City of Houston, thesuccess of development within the District and growth of District taxable property values are, to a great extent,a function of the Houston metropolitan and regional economies and national credit and financial markets. Adownturn in the economic conditions of Houston and continued decline in real estate and financial markets inthe United States could adversely affect development and homebuilding plans or the construction of newapartments or commercial buildings in the District and restrain the growth of the District’s property tax base.

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Developer/Builder/Landowner Obligation to the District: The ability of the Developers (or any of theirpartners or co-managers) and any other principal taxpayer (see “TAX DATA – Principal 2019 Taxpayers”),including the Builders within the District to make full and timely payments of taxes levied against their propertyby the District and similar taxing authorities will directly affect the District's ability to meet its debt serviceobligations. There is no commitment to the District by or legal requirement of the Developers or any otherparty to proceed at any particular rate or according to any specified plan with the development of land in theDistrict, of the Builders or any other home building company to proceed at any particular pace with theconstruction of homes in the District, or of any party to construct commercial/retail or multi-familyimprovements within the District in addition to those constructed therein to date, and there is no restriction onany land owner's right to sell its land. Therefore, the District can make no representation about the probabilityof future development, if any, or the rate of home construction activity in the District. See “DEVELOPMENTAND HOME CONSTRUCTION,” “DEVELOPERS AND OTHER PRINCIPAL LAND OWNERS,” and“FUTURE DEVELOPMENT.”

Maximum Impact on District Tax Rates: Assuming no further development, the value of the land andimprovements currently within the District will be the major determinant of the ability or willingness of Districtproperty owners to pay their taxes. The 2019 Assessed Valuation of property located within the District (see“TAX DATA”) is $560,046,667. After issuance of the Bonds, the maximum annual debt service requirementon the Bonds and the Remaining Outstanding Bonds will be $3,435,975 (2037) and the average annual debtservice requirements will be $3,327,966 (2020 through 2037, inclusive). Assuming no increase to nor decreasefrom the 2019 Assessed Valuation, the issuance of no additional bonds by the District, and no use of otherlegally available District funds, tax rates of $0.65 and $0.63 per $100 of assessed valuation at a 95% taxcollection rate would be necessary to pay the maximum annual debt service requirement and the average annualdebt service requirements, respectively, on the Bonds and the Remaining Outstanding Bonds. The EstimatedValuation at March 1, 2020, of property within the District is $638,870,325. Assuming no increase to ordecrease from the Estimated Valuation at March 1, 2020, the issuance of no additional bonds by the District,and no use of other legally available District funds, tax rates of $0.57 and $0.55 per $100 of Assessed Valuationat a 95% collection rate would be necessary to pay the maximum annual debt service requirement and theaverage annual debt service requirements, respectively, on the Bonds and the Remaining Outstanding Bonds. See “TAX DATA - Tax Rate Calculations.” The District levied a debt service tax of $0.62 per $100 ofAssessed Valuation plus a maintenance tax of $0.27 per $100 of Assessed Valuation for 2019. Therefore, the2019 debt service rate is sufficient to pay the average annual debt service requirements and the maximumannual debt service requirement on the Bonds and the Remaining Outstanding Bonds, given taxable values inthe District at the level of the Estimated Valuation at March 1, 2020, assuming a tax collection rate of 95%, nouse of funds on hand, and the issuance of no additional bonds by the District. As is illustrated in this OfficialStatement under the caption “TAX DATA - Historical Values and Tax Collection History,” as of March 31,2020, the District has collected an average of 99.89% of its tax for the period 2009 through 2018, and its 2019levy, which is in the process of collection, was 97.30% collected as of such date. Moreover, the District's DebtService Fund balance is estimated to be $5,644,821 as of the date of delivery of the Bonds. Although neitherTexas law nor the Bond Resolution requires that any specific amount be retained in the Debt Service Fund atany time, the District has in the past applied earnings from the investment of monies held in the Debt ServiceFund to meet the debt service requirements of the Prior Bonds. See “APPENDIX B - INDEPENDENTAUDITOR’S REPORT AND FINANCIAL STATEMENTS.” Therefore, the District anticipates that it willbe able to meet the debt service requirements on the Bonds and the Remaining Outstanding Bonds withoutincreasing the tax rate for debt service above the debt service rate which the District levied for 2019 - $0.62per $100 of Assessed Valuation. However, the District can make no representation that the taxable propertyvalues in the District will increase in the future or will maintain a value sufficient to support the aforementionedtax rate or to justify continued payment of taxes by property owners. See “TAX PROCEDURES.” In additionto the components of the System the acquisition or construction of which the District has financed with portionsof the proceeds of the Prior Bonds, the District expects to finance its share of the cost of acquisition orconstruction of additional components of the System with portions of the proceeds of the sale of bonds, if any,including reimbursement to some of its Developers, to be issued by the District in the future, including theDistrict’s approximately $5,455,000 Unlimited Tax Bonds, Series 2020A that it expects to issue inapproximately the fourth quarter of 2020. See “THE BONDS - Issuance of Additional Debt,” “Future Debt”below and “THE SYSTEM.”

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As is enumerated in this Official Statement under the caption “TAX DATA - Estimated Overlapping Taxes,”the total of the 2019 tax levies of all overlapping taxing units which levy taxes upon property located in theDistrict, plus the District's total 2019 rate of $0.89 per $100 of Assessed Valuation, is $3.13285. The District'stotal rate of $0.89 per $100 of Assessed Valuation and such total rates of $3.13285 per $100 of AssessedValuation are higher than the individual and total tax levies of some municipal utility districts in the Houstonmetropolitan area, including the area of the District, but are within the range of individual and total levies ofmunicipal utility districts in the Houston metropolitan area and the area of the District which are in stages ofdevelopment comparable with the District.

Tax Collection Limitations

The District's ability to make debt service payments may be adversely affected by its inability to collect ad valorem taxes.Under Texas law, the levy of ad valorem taxes by the District constitutes a lien in favor of the District on a parity withthe liens of all other taxing authorities on the property against which taxes are levied, and such lien may be enforced byforeclosure. The District's ability to collect ad valorem taxes through such foreclosure may be impaired by (a)cumbersome, time-consuming and expensive collection procedures, (b) a bankruptcy court's stay of tax collectionprocedures against a taxpayer, (c) market conditions limiting the proceeds from a foreclosure sale of taxable property,or (d) the taxpayer's right to redeem the property within two years of foreclosure. While the District has a lien on taxableproperty within the District for taxes levied against such property, such lien can be foreclosed only in a judicialproceeding.

Registered Owners' Remedies and Bankruptcy

In the event of default in the payment of principal of or interest on the Bonds, the Registered Owners have a right to seeka writ of mandamus requiring the District to levy sufficient taxes each year to make such payments. Except formandamus, the Bond Resolution does not specifically provide for remedies to protect and enforce the interests of theRegistered Owners. There is no acceleration of maturity of the Bonds in the event of default and, consequently, theremedy of mandamus may have to be relied upon from year to year. Based on recent Texas court decisions, it is unclearwhether §49.066, Texas Water Code, effectively waives governmental immunity of a municipal utility district for suitsfor money damages. Even if the Registered Owners could obtain a judgment against the District, such a judgment couldnot be enforced by a direct levy and execution against the District's property. Further, the Registered Owners cannotthemselves foreclose on property within the District or sell property within the District in order to pay the principal ofand interest on the Bonds. Since there is no trust indenture or trustee, the Registered Owners would have to initiate andfinance the legal process to enforce their remedies. The enforceability of the rights and remedies of the RegisteredOwners may be limited further by laws relating to bankruptcy, reorganization or other similar laws of general applicationaffecting the rights of creditors of political subdivisions such as the District. In this regard, should the District file apetition for protection from creditors under federal bankruptcy laws, a suit seeking the remedy of mandamus would beautomatically stayed and could not be pursued unless authorized by a federal bankruptcy judge. See “THE BONDS -Bankruptcy Limitation to Registered Owners' Rights.”

The District may not be placed into bankruptcy involuntarily.

Marketability

The District has no understanding (other than the initial reoffering yields) with the Underwriters regarding the reofferingyields or prices of the Bonds and has no control over the trading of the Bonds in the secondary market. Moreover, thereis no assurance that a secondary market will be made for the Bonds. If there is a secondary market, the differencebetween the bid and asked price of the Bonds may be greater than the bid and asked spread of other bonds generallybought, sold or traded in the secondary market. See “SALE AND DISTRIBUTION OF THE BONDS.”

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Future Debt

The District reserved in the Bond Resolution the right to issue the remaining $19,165,000 in unlimited tax bondsauthorized but unissued for waterworks, sanitary sewer and drainage facilities, and such additional bonds as mayhereafter be approved by the voters of the District. The District has also reserved the right to issue certain otheradditional bonds, special project bonds, and other obligations described in the Bond Resolution. All of the remainingbonds described above for waterworks, sanitary sewer and drainage facilities, which have heretofore been authorizedby the voters of the District, may be issued by the District from time to time as needed. The issuance of such$19,165,000 in bonds for waterworks, wastewater and drainage facilities is also subject to TCEQ authorization. TheDistrict’s voters have also authorized a total of $80,400,000 unlimited tax refunding bonds for the purpose of refundingoutstanding bonds of the District and could authorize additional amounts. Following the issuance of the Bonds, theDistrict will have $78,014,401.55 of unlimited tax refunding bonds authorized but unissued.

The District’s Engineer estimates that the aforementioned $19,165,000 authorized unlimited tax bonds which remainunissued after the sale of the Bonds, plus available surplus funds, may not be adequate to finance the acquisition orconstruction of all water, wastewater and drainage facilities necessary to provide service to all of the developable,undeveloped portions of the District. In order for the District to issue bonds in an amount greater than the $19,165,000that is currently authorized, the District would be required to obtain voter authorization to issue additional bonds at anelection held for such purpose. The District cannot predict the outcome of such election if it is called. The District makesno representation that any future development will be undertaken in the District. If additional bonds are issued in thefuture and property values have not increased proportionately, such issuance may increase gross debt/property valuationratios and thereby adversely affect the investment quality or security of the Bonds and, after the refunding of theRefunded Bonds, the Remaining Outstanding Bonds. In addition to the components of the System that the District hasfinanced with the proceeds of the sale of the Prior Bonds, the District expects to finance the acquisition or constructionof additional components of the System with portions of the proceeds of the sale of bonds, if any, includingreimbursement to some of its Developers, to be issued by the District in the future, including the District’s approximately$5,455,000 Unlimited Tax Bonds, Series 2020A that it expects to issue in approximately the fourth quarter of 2020. See“THE BONDS - Issuance of Additional Debt,” “USE AND DISTRIBUTION OF BOND PROCEEDS” and “THESYSTEM.”

Competitive Nature of Houston Single-Family and Multi-Family Residential and Commercial/Retail Developmentand Construction Markets

The single-family and multi-family residential and commercial/retail development industries in the Houston area are verycompetitive, and the District can give no assurance that any single-family residential lot development or homebuildingprograms will be initiated in the District in addition to the single-family residential lot development and homebuildingprograms that have been undertaken in the District to date, or that any commercial/retail or multi-family residentialdevelopment or construction of future above-ground commercial/retail or multi-family improvements will be undertakenin the District in addition to the commercial/retail or multi-family development projects and construction of above-ground commercial/retail or multi-family improvements that have been undertaken in the District to date as are describedin this Official Statement under the caption “DEVELOPMENT AND HOME CONSTRUCTION.” The respectivecompetitive positions of any developer(s), or home builder(s) which might attempt future single-family residential lotdevelopment or homebuilding programs in the District in the sale of developed single-family residential lots or in theconstruction and sale of single-family residential homes or of any commercial/retail or multi-family developer whichmight undertake future commercial/retail or multi-family development projects or the construction of new above-groundcommercial/retail or multi-family improvements are affected by most of the factors discussed in this section, and suchsingle-family residential lot development and/or commercial/retail or multi-family development projects and theconstruction of single-family residential units and/or commercial/retail or multi-family above-ground improvements aredirectly related to tax revenues received by the District and the growth and maintenance of taxable values in the District.

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Continuing Compliance with Certain Covenants

The Bond Resolution contains covenants by the District intended to preserve the exclusion from gross income of intereston the Bonds. Failure of the District to comply with such covenants on a continuous basis prior to maturity of the Bondscould result in interest on the Bonds becoming taxable retroactively to the date of original issuance. See “TAXMATTERS.”

Marketability

The District has no understanding (other than the initial reoffering yields) with the Underwriters regarding the reofferingyields or prices of the Bonds and has no control over the trading of the Bonds in the secondary market. Moreover, thereis no assurance that a secondary market will be made for the Bonds. If there is a secondary market, the differencebetween the bid and asked price of the Bonds may be greater than the bid and asked spread of other bonds generallybought, sold or traded in the secondary market. See “SALE AND DISTRIBUTION OF THE BONDS.”

Environmental Regulations

Wastewater treatment, water supply, storm sewer facilities and construction activities within the District are subject tocomplex environmental laws and regulations at the federal, state and local levels that may require or prohibit certainactivities that affect the environment, such as:

• Requiring permits for construction and operation of water wells, wastewater treatment and other facilities;• Restricting the manner in which wastes are treated and released into the air, water and soils;• Restricting or regulating the use of wetlands or other properties; or• Requiring remedial action to prevent or mitigate pollution.

Sanctions against a municipal utility district or other type of special purpose district for failure to comply withenvironmental laws and regulations may include a variety of civil and criminal enforcement measures, includingassessment of monetary penalties, imposition of remedial requirements and issuance of injunctions to ensure futurecompliance. Environmental laws and compliance with environmental laws and regulations can increase the cost ofplanning, designing, constructing and operating water production and wastewater treatment facilities. Environmentallaws can also inhibit growth and development within the District. Further, changes in regulations occur frequently, andany changes that result in more stringent and costly requirements could materially impact the District.

Air Quality Issues

Air quality control measures required by the United States Environmental Protection Agency (the "EPA") and the TexasCommission on Environmental Quality (the "TCEQ") may impact new industrial, commercial and residentialdevelopment in the Houston area. Under the Clean Air Act ("CAA") Amendments of 1990, the eight-countyHouston-Galveston-Brazoria area ("HGB Area")-Harris, Galveston, Brazoria, Chambers, Fort Bend, Waller,Montgomery and Liberty Counties-has been designated a nonattainment area under three separate federal ozonestandards: the one-hour (124 parts per billion ("ppb") and eight-hour (84 ppb) standards promulgated by the EPA in1997 (the "1997 Ozone Standards"); the tighter, eight-hour ozone standard of 75 ppb promulgated by the EPA in 2008(the "2008 Ozone Standard"), and the EPA's most-recent promulgation of an even lower, 70 ppb eight-hour ozonestandard in 2015 (the "2015 Ozone Standard"). While the State of Texas has been able to demonstrate steady progressand improvements in air quality in the HGB Area, the HGB Area remains subject to CAA nonattainment requirements.

The HGB Area is currently designated as a severe ozone nonattainment area under the 1997 Ozone Standards. Whilethe EPA has revoked the 1997 Ozone Standards, the EPA historically has not formally redesignated nonattainment areasfor a revoked standard. As a result, the HGB Area remained subject to continuing severe nonattainment area"anti-backsliding" requirements, despite the fact that HGB Area air quality has been attaining the 1997 Ozone Standardssince 2014. In late 2015, the EPA approved the TCEQ's "redesignation substitute" for the HGB Area under the revoked1997 Ozone Standards, leaving the HGB Area subject only to the nonattainment area requirements under the 2008 OzoneStandard (and later, the 2015 Ozone Standard).

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In February 2018, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion in South Coast AirQuality Management District v. EPA, 882 F.3d 1138 (D.C. Cir. 2018) vacating the EPA redesignation substitute rulethat provided the basis for the EPA's decision to eliminate the anti-backsliding requirements that had applied in the HGBArea under the 1997 Ozone Standard. The court has not responded to the EPA's April 2018 request for rehearing of thecase. To address the uncertainty created by the South Coast court's ruling, the TCEQ has developed a formal requestthat the HGB Area be redesignated to attainment under the 1997 Ozone Standards. The TCEQ Commissioners approvedpublication of a proposed HGB Area redesignation request under the 1997 Ozone Standards on September 5, 2018.

The HGB Area is currently designated as a "moderate" nonattainment area under the 2008 Ozone Standard, with anattainment deadline of July 20, 2018. If the EPA ultimately determines that the HGB Area has failed to meet theattainment deadline based on the relevant data, the area is subject to reclassification to a nonattainment classificationthat provides for more stringent controls on emissions from the industrial sector. In addition, the EPA may impose amoratorium on the awarding of federal highway construction grants and other federal grants for certain public worksconstruction projects if it finds that an area fails to demonstrate progress in reducing ozone levels.

The HGB Area is currently designated as a "marginal" nonattainment area under the 2015 Ozone Standard, with anattainment deadline of August 3, 2021. For purposes of the 2015 Ozone Standard, the HGB Area consists of only sixcounties: Brazoria, Chambers, Fort Bend, Galveston, Harris, and Montgomery Counties.

In order to demonstrate progress toward attainment of the EPA's ozone standards, the TCEQ has established a stateimplementation plan ("SIP") for the HGB Area setting emission control requirements, some of which regulate theinspection and use of automobiles. These types of measures could impact how people travel, what distances people arewilling to travel, where people choose to live and work, and what jobs are available in the HGB Area. These SIPrequirements can negatively impact business due to the additional permitting/regulatory constraints that accompany thisdesignation and because of the community stigma associated with a nonattainment designation. It is possible thatadditional controls will be necessary to allow the HGB Area to reach attainment with the ozone standards by the EPA'sattainment deadlines. These additional controls could have a negative impact on the HGB Area's economic growth anddevelopment.

Water Supply & Discharge Issues

Water supply and discharge regulations that municipal utility districts, including the District, may be required to complywith involve: (1) groundwater well permitting and surface water appropriation; (2) public water supply systems; (3)wastewater discharges from treatment facilities; (4) storm water discharges; and (5) wetlands dredge and fill activities.Each of these is addressed below:

Certain governmental entities regulate groundwater usage in the HGB Area. A municipal utility district or other typeof special purpose district that (i) is located within the boundaries of such an entity that regulates groundwater usage,and (ii) relies on local groundwater as a source of water supply, may be subject to requirements and restrictions on thedrilling of water wells and/or the production of groundwater that could affect both the engineering and economicfeasibility of district water supply projects.

Pursuant to the federal Safe Drinking Water Act ("SDWA") and the EPA's National Primary Drinking Water Regulations("NPDWRs"), which are implemented by the TCEQ's Water Supply Division, a municipal utility district's provision ofwater for human consumption is subject to extensive regulation as a public water system. Municipal utility districts mustgenerally provide treated water that meets the primary and secondary drinking water quality standards adopted by theTCEQ, the applicable disinfectant residual and inactivation standards, and the other regulatory action levels establishedunder the agency's rules. The EPA has established NPDWRs for more than ninety (90) contaminants and has identifiedand listed other contaminants which may require national drinking water regulation in the future.

Texas Pollutant Discharge Elimination System ("TPDES") permits set limits on the type and quantity of discharge, inaccordance with state and federal laws and regulations. The TCEQ reissued the TPDES Construction General Permit(TXR150000), with an effective date of March 5, 2018, which is a general permit authorizing the discharge ofstormwater runoff associated with small and large construction sites and certain nonstormwater discharges into surface

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water in the state. It has a 5-year permit term, and is then subject to renewal. Moreover, the Clean Water Act ("CWA")and Texas Water Code require municipal wastewater treatment plants to meet secondary treatment effluent limitationsand more stringent water quality-based limitations and requirements to comply with the Texas water quality standards.Any water quality-based limitations and requirements with which a municipal utility district must comply may have animpact on the municipal utility district's ability to obtain and maintain compliance with TPDES permits.

Operations of utility districts, including the District, are also potentially subject to requirements and restrictions underthe CWA regarding the use and alteration of wetland areas that are within the "waters of the United States." The Districtmust also obtain a permit from the United States Army Corps of Engineers ("USACE") if operations of the Districtrequire that wetlands be filled, dredged, or otherwise altered.

In 2015, the EPA and USACE promulgated a rule known as the Clean Water Rule ("CWR") aimed at redefining "watersof the United States" over which the EPA and USACE have jurisdiction under the CWA. The CWR significantlyexpanded the scope of the federal government's CWA jurisdiction over intrastate water bodies and wetlands.

On September 12, 2019, the EPA and USACE finalized a rule repealing the CWR, thus reinstating the regulatory textthat existed prior to the adoption of the CWR. This repeal became final on December 23, 2019.

On January 23, 2020, the EPA and USACE released the Navigable Waters Protection Rule ("NWPR"), which containsa new definition of "waters of the United States." The stated purpose of the NWPR is to restore and maintain the integrityof the nation's waters by maintaining federal authority over the waters Congress has determined should be regulated bythe federal government, while preserving the states' primary authority over land and water resources. The new definitionoutlines four categories of waters that are considered "waters of the United States," and thus federally regulated underthe CWA: (i) territorial seas and traditional navigable waters; (ii) perennial and intermittent tributaries to territorial seasand traditional navigable waters; (iii) certain lakes, ponds, and impoundments of jurisdictional waters; and (iv) wetlandsadjacent to jurisdictional waters. The new rule also identifies certain specific categories that are not "waters of the UnitedStates," and therefore not federally regulated under the CWA: (a) groundwater; (b) ephemeral features that flow onlyin direct response to precipitation; (c) diffuse stormwater runoff and directional sheet flow over upland; (d) certainditches; (e) prior converted cropland; (f) certain artificially irrigated areas; (g) certain artificial lakes and ponds; (h)certain water-filled depressions and certain pits; (i) certain stormwater control features; (j) certain groundwater recharge,water reuse, and wastewater recycling structures; and (k) waste treatment systems. The NWPR will become effective60 days after the date of its publication in the Federal Register, and will likely become the subject of further litigation.

The District's stormwater discharges currently maintain permit coverage through the Municipal Separate Storm SystemPermit (the "Current Permit") issued to the Storm Water Management Joint Task Force consisting of Harris County,Harris County Flood Control District, the City of Houston, and the Texas Department of Transportation. In the eventthat at any time in the future the District is not included in the Current Permit, it may be required to seek independentcoverage under the TCEQ's General Permit for Phase II (Small) Municipal Separate Storm Sewer Systems (the "MS4Permit"), which authorizes the discharge of stormwater to surface water in the state from small municipal separate stormsewer systems. If the District's inclusion in the MS4 Permit were required at a future date, the District could incursubstantial costs to develop, implement, and maintain the necessary plans as well as to install or implement bestmanagement practices to minimize or eliminate unauthorized pollutants that may otherwise be found in stormwaterrunoff in order to comply with the MS4 Permit.

Tropical Weather Events

The Houston area, including the District, is subject to occasional severe tropical weather events, including tropical stormsand hurricanes. If the District were to sustain damage to its facilities requiring substantial repair or replacement or ifsubstantial damage were to occur to taxable property within the District as a result of such a weather event, theinvestment security of the Bonds could be adversely affected.

The greater Houston area has experienced four storms exceeding a 0.2% probability (i.e. "500 year flood" events) since2015, including Hurricane Harvey, which made landfall along the Texas Gulf Coast on August 26, 2017, and broughthistoric levels of rainfall during the successive four days. According to the District's Operator and Engineer, the

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District's System did not sustain any material damage from Hurricane Harvey and there was no interruption of water andsewer service. Further, according to the District's Operator, after investigation, although the District experienced streetflooding, there was no apparent material wind or water damage to single-family homes or commercial/retailimprovements within the District. Hurricane Harvey could have a material impact on the Houston region's economy.

If a future weather event significantly damaged all or part of the improvements within the District, the assessed valueof property within the District could be substantially reduced, which could result in a decrease in tax revenues and/ornecessitate an increase the District's tax rate. Further, there can be no assurance that a casualty loss to taxable propertywithin the District will be covered by insurance (or that property owners will even carry flood or other casualtyinsurance), that any insurance company will fulfill its obligation to provide insurance proceeds, or that insuranceproceeds will be used to rebuild or repair any damaged improvements within the District. Even if insurance proceedsare available and improvements are rebuilt, there could be a lengthy period in which assessed values within the Districtcould be adversely affected.

Riverine, or fluvial, flooding occurs when water levels rise over the top of river, bayou or channel banks due to excessiverain from tropical systems making landfall and/or persistent thunderstorms over the same area for extended periods oftime. The damage from a riverine flood can be widespread. The overflow can affect smaller rivers and streamsdownstream, or may sheet-flow over land. Flash flooding is a type of riverine flood that is characterized by an intense,high velocity torrent of water that occurs in an existing river channel with little to no notice. Flash flooding can alsooccur even if no rain has fallen, for instance, after a levee, dam or reservoir has failed or experienced an uncontrolledrelease, or after a sudden release of water by a debris or ice jam. In addition, planned or unplanned controlled releasesfrom a dam, levee or reservoir also may result in flooding in areas adjacent to rivers, bayous or drainage systemsdownstream.

Ponding, or pluvial, flooding occurs when heavy rainfall creates a flood event independent of an overflowing water body,typically in relatively flat areas. Intense rainfall can exceed the drainage capacity of a drainage system, which may resultin water within the drainage system becoming trapped and diverted onto streets and nearby property until it is able toreach a natural outlet. Ponding can also occur in a flood pool upstream or behind a dam, levee or reservoir.

Changes in Tax Legislation

Certain tax legislation, whether currently proposed or proposed in the future, may directly or indirectly reduce oreliminate the benefit of the exclusion of interest on the Bonds from gross income for federal income tax purposes. Anyproposed legislation, whether or not enacted, may also affect the value and liquidity of the Bonds. Prospectivepurchasers of the Bonds should consult with their own tax advisors with respect to any proposed, pending or futurelegislation.

Infectious Disease Outlook (COVID-19)

The World Health Organization has declared a pandemic following the outbreak of COVID-19, a respiratory diseasecaused by a new strain of coronavirus (the "Pandemic"), which is currently affecting many parts of the world, includingthe United States and Texas. On January 31, 2020, the Secretary of the United States Health and Human ServicesDepartment declared a public health emergency for the United States in connection with COVID-19. On March 13, 2020,the President of the United States (the "President") declared the Pandemic a national emergency and the Texas Governor(the "Governor") declared COVID-19 an imminent threat of disaster for all counties in Texas (collectively, the "disasterdeclarations"). On March 25, 2020, in response to a request from the Governor, the President issued a Major DisasterDeclaration for the State of Texas. Pursuant to Chapter 418 of the Texas Government Code, the Governor has broad authority to respond to disasters,including suspending any regulatory statute prescribing the procedures for conducting state business or any order or ruleof a state agency that would in any way prevent, hinder, or delay necessary action in coping with this disaster and issuingexecutive orders that have the force and effect of law. The Governor has issued a number of executive orders relatingto COVID-19 preparedness and mitigation. Many of the federal, state and local actions and policies under theaforementioned disaster declarations are focused on slowing the spread of COVID-19 by limiting instances where thepublic can congregate or interact with each other, which affects economic conditions within Texas.

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Since the disaster declarations were made, the Pandemic has negatively affected travel, commerce, and financial marketslocally and globally, and is widely expected to continue negatively affecting economic conditions and financial marketsworldwide and within Texas and the Houston area. Stock values and oil prices, in the U.S. and globally, have seensignificant declines attributed in part to COVID-19 concerns. Texas may be particularly at risk from any globalslowdown, given the prevalence of international trade in the state and the risk of contraction in the oil and gas industryand spillover effects into other industries.

Such adverse economic conditions, if they continue, could result in declines in the demand for residential andcommercial property in the Houston area and could reduce or negatively affect property values within the District. TheBonds are secured by an unlimited ad valorem tax, and a reduction in property values may require an increase in the advalorem tax rate required to pay the Bonds as well as the District's share of operations and maintenance expenses payablefrom ad valorem taxes.

The District continues to monitor the spread of COVID-19 and is working with local, state, and national agencies toaddress the potential impact of COVID-19 upon the District. While the potential impact of COVID-19 on the Districtcannot be quantified at this time, the continued outbreak of COVID-19 could have an adverse effect on the District'soperations and financial condition. The financial and operating data contained herein are the latest available, but are asof dates and for periods prior to the economic impact of the Pandemic and measures instituted to slow it. Accordingly,they are not necessarily indicative of the economic impact of the Pandemic on the District's financial condition.

Potential Effects of Oil Price Declines on the Houston Area

The recent declines in oil prices in the U.S. and globally, which at times have led to the lowest such prices in threedecades, may lead to adverse conditions in the oil and gas industry, including but not limited to reduced revenues,declines in capital and operating expenditures, business failures, and layoffs of workers. The economy of the Houstonarea has, in the past, been particularly affected by adverse conditions in the oil and gas industry, and such conditions andtheir spillover effects into other industries could result in declines in the demand for residential and commercial propertyin the Houston area and could reduce or negatively affect property values or homebuilding activity within the District. As previously stated, the Bonds are secured by an unlimited ad valorem tax, and a reduction in property values mayrequire an increase in the ad valorem tax rate required to pay the Bonds as well as the District's share of operations andmaintenance expenses payable from ad valorem taxes.

THE DISTRICT

General

The District is a municipal utility district created by an order of the Texas Water Commission, a predecessor to theTCEQ, dated March 27, 1985, under Article XVI, Section 59 of the Texas Constitution, and operates under theprovisions of Chapter 49 and Chapter 54 of the Texas Water Code, as amended, and other general statutes of Texasapplicable to municipal utility districts. The District, which lies wholly within the extraterritorial jurisdiction of the Cityof Houston, is subject to the continuing supervisory jurisdiction of the TCEQ.

The District is empowered, among other things, to finance, purchase, construct, operate and maintain all works,improvements, facilities and plants necessary for the supply and distribution of water; the collection, transportation andtreatment of wastewater; and the control and diversion of storm water. The District may issue bonds and other formsof indebtedness to purchase or construct such facilities. The District may also provide solid waste disposal and collectionservices. The District is also empowered to establish, operate and maintain fire-fighting facilities, separately or jointly with one or more conservation and reclamation districts, municipalities or other political subdivisions, after approvalby the TCEQ and the voters of the District. Additionally, the District may, subject to certain limitations, develop andfinance recreational facilities and may also, subject to the granting of road powers by the TCEQ and certain limitations,develop and finance roads. See “THE BONDS - Issuance of Additional Debt,” - “Financing Recreational Facilities” and- “Financing Road Facilities.”

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The District is required to observe certain requirements of the City of Houston which limit the purposes for which theDistrict may sell bonds to the acquisition, construction, and improvement of waterworks, wastewater, drainage,recreational, road and fire-fighting facilities and the refunding of outstanding debt obligations; limit the net effectiveinterest rate on such bonds and other terms of such bonds; require approval by the City of Houston of Districtconstruction plans; and permit connections only to lots and reserves described in a plat that has been approved by theCity of Houston and filed in the real property records of Harris County. The District is also required to obtain certainTCEQ approvals prior to acquiring, constructing and financing road and fire-fighting facilities, as well as voter approvalof the issuance of bonds for said purposes and/or for the purposes of financing recreational facilities. Construction andoperation of the District's drainage system is subject to the regulatory jurisdiction of additional State of Texas and localagencies. See “THE SYSTEM.”

Description

The District contains approximately 1,230.1986 acres of land. The District is located entirely within Harris County,Texas, and entirely within the extraterritorial jurisdiction of the City of Houston, Texas (the “City”). The District islocated approximately twenty miles northeast of the central business district of the City, approximately five miles eastof U.S. Highway 59. The District is composed of multiple tracts of land, with the eastern portion of the District generallybounded on the south by Will Clayton Parkway, on the north by Atascocita Road, and on the east by Timber ForestDrive. Five tracts of land that are located within the District are generally bounded to the north by Will ClaytonParkway, on the west by Wilson Road and on the south by Atascocita Road. Two other tracts of land that are locatedwithin the District are generally bounded to the north by Atascocita Road, on the west by Ygnacio Road and on the eastby Woodland Hills Drive. Two additional tracts of land that are located within the District are generally bounded to thesouth by Will Clayton Parkway, on the west by Wilson Road and on the east by Woodland Hills Drive. See“APPENDIX A - LOCATION MAP.”

Management of the District

The District is governed by the Board of Directors, consisting of five directors. The Board of Directors has control overand management supervision of all affairs of the District. Directors serve four-year staggered terms, and elections areheld within the District in May in even numbered years, although the current election has been rescheduled forNovember, 2020. The current members and officers of the Board, along with their respective terms of office, are listedbelow.

Name Title Terms Expires May

Eugene Newsom President/General Manager 2020

Tommie Ruth Allen Vice President 2020

Gwen Thornburg Assistant Vice President 2022

Donald E. Matlock Secretary 2022

Shantai Warren Assistant Secretary 2022

The District has employed a director to serve as the general manager on an hourly basis to provide management services. The District has contracted for other services, as follows:

Tax Assessor/Collector - The District has engaged Assessments of the Southwest, Inc., Friendswood, Texas, as theDistrict's Tax Assessor/Collector. According to Assessments of the Southwest, Inc., it presently serves approximately193 taxing units as tax assessor/collector. The Tax Assessor/Collector applies the District's tax levy to tax rolls preparedby the Harris County Appraisal District and bills and collects such levy.

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Utility System Operator - Si Environmental, LLC is employed by the District as the general operator of the District'sSystem. According to Si Environmental, LLC it serves as operator of the systems of approximately 100 districts.

Consulting Engineers - The District has employed the firm of BGE, Inc., Houston, Texas, as Consulting Engineerin connection with the overall planning activities and the design of the System.

Bookkeeper - The District has engaged Municipal Accounts & Consulting, L.P. as the District's Bookkeeper. According to Municipal Accounts & Consulting, L.P., it currently serves approximately 400 districts as bookkeeper.

Auditor - As required by the Texas Water Code, the District retains an independent auditor to audit the District'sfinancial statements annually, which annual audited financial statements are filed with the TCEQ. The financialstatements of the District as of August 31, 2019, and for the year then ended, included in this offering document, havebeen audited by BKD, LLP, independent auditors, as stated in their report appearing herein. See “APPENDIX B.”

Bond Counsel and General Counsel - The District has engaged Allen Boone Humphries Robinson LLP, Houston,Texas, as general counsel to the District and as bond counsel (“Bond Counsel”) in connection with the issuance of theBonds. The fees to be paid Bond Counsel in connection with the issuance of the Bonds are based on a percentage of theBonds actually issued and sold. Therefore, the payment of such fees is contingent upon the sale and delivery of theBonds. See “LEGAL MATTERS.”

Financial Advisor - The District has engaged Rathmann & Associates, L.P., as financial advisor (the “FinancialAdvisor”) to the District. The fees to be paid the Financial Advisor for services rendered in connection with the issuanceof the Bonds are based on a percentage of the Bonds actually issued and sold. Therefore, the payment of such fees iscontingent upon the sale and delivery of the Bonds. Rathmann & Associates, L.P. is an independent municipal advisorregistered with the United States Securities and Exchange Commission (the “SEC”) and the Municipal SecuritiesRulemaking Board (the “MSRB”). Rathmann & Associates, L.P.’s SEC registration number is 867-00217 and itsMSRB registration number is K0161. Rathmann & Associates, L.P.’s SEC registration Forms MA and MA-1's, whichconstitute Rathmann & Associates, L.P.’s registration filings, may be accessed throughhttp://www.sec.gov/edgar/searchedgar/company search.html.

DEVELOPMENT AND HOME CONSTRUCTION

Development and home construction accomplished in the District to date include the completion of the development of3,203 single family residential lots, and 3,103 homes, including 22 homes under construction (see “BUILDERS” below). In addition, a day care center, an office building, warehouses, two medical treatment and care facilities, and other retailand commercial enterprises, including gas stations, restaurants, auto parts and repair shops, a strip center, a boat storagefacility, a bank, a convenience store, a hardware store and a car wash aggregating approximately 342,060 square feetof building area have been constructed on approximately 41.4 acres of land within the District. The 241-unit Park atTour 18 Apartments (“Tour 18 Apartments”) are currently under construction on approximately 9.03 acres within theDistrict with completion anticipated in approximately October 2020.

According to the District's Engineer, underground water, sewer and drainage facilities and street paving have beenconstructed to serve the aforementioned total of 3,203 single family residential lots on approximately 690.91 acres plattedas Timber Forest, Sections 1 and 4 through 7, Clayton’s Corner, Sections 1 through 4, Woodland Pines, Sections 1through 10, Laurel Place, Sections 1 through 3, Atascocita Trace, Sections 1 through 6, Blackstone Creek, Sections 1through 4, and Villages at Tour 18, Sections 1 and 2.

The District also contains unrestricted reserves aggregating (i) approximately 73.89 acres that have been developed formulti-family residential or commercial usage consisting of (a) approximately 23.74 acres of reserves platted as TimberForest, Section 1, (b) approximately 39.51 acres of reserves platted as Timber Forest, Section 2, (c) approximately 10.64acres of reserves platted as Timber Forest, Section 3, including an aggregate of approximately 17.14 acres of street rightsof way located in such sections, (ii) approximately 63.19 total acres that are located along Hunters Terrace Drive, onapproximately 9.03 acres of which the 241-unit Tour 18 Apartments are currently under construction, approximately

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10.57 acres of which are expected to be developed for future multi-family residential usage, approximately 13.60 acresof which are expected to be developed for future commercial usage and the remaining approximately 30.0 acres of whichare contained within storm water detention facilities and pipeline or electrical easements, and (iii) approximately 33.14additional acres of land used for storm water detention facilities. According to the District's Engineer, undergroundwater, sewer and drainage facilities and street paving to serve all of such unrestricted reserves have been constructedto (or are in close proximity to) the perimeters of the tracts which they serve. See “FUTURE DEVELOPMENT.”

Approximately 365.94 acres of land located in the District, exclusive of certain easements, rights-of-way, and other landnot available for development, are currently undeveloped. Approximately 3.40 of such acres that are available for futuredevelopment are owned by WP70, LP (defined below under the caption “DEVELOPERS AND OTHER PRINCIPALLAND OWNERS”). Humble Independent School District owns 81.13 acres of land located within the District whichproperty is exempt from taxation and which is expected to construct schools and facilities on such acreage. Approximately 14.45 of such acres that are available for future development are owned by KB Home (defined belowunder the caption “DEVELOPERS AND OTHER PRINCIPAL LAND OWNERS”). It is anticipated that KB Homewill develop such currently undeveloped acreage in the future as Villages at Tour 18, Section 3 (approximately 50single-family residential lots). Approximately 64.13 of such acres that are available for future development are ownedby Sowell Interests-Atascocita, L.P. (“SIA”) (defined below under the caption “DEVELOPERS AND OTHERPRINCIPAL LAND OWNERS”). SIA has not reported any definitive development plan to the District covering anyof such acres. As is reflected on the District’s 2019 tax roll, approximately 159.71 of such acres that are available forfuture development are owned by Rancho Del Austin Partners, L.P. (“RDA”). Approximately 10.52 of such acres thatare available for future development are owned by KTB Holdings LP (“KTB”), which are expected to be used for futurecommercial development. The remaining acres that are available for future development are owned by multiple otherparties, none of which has reported any definitive development plan to the District covering any of such acres. Sinceno party, including WP70, KB Home, SIA, RDA or KTB, has any obligation to the District to develop any of suchcurrently undeveloped acres at any particular pace or at all, the District cannot represent that any development will beundertaken in the District in addition to the development undertaken therein to date, nor can the District represent theultimate utilization of such currently undeveloped land. The District is unaware of any specific development orconstruction of above ground improvements planned for any of the reserves located in Timber Forest, Sections 1 through3 or the acres that are located along Hunters Terrace Drive described above in addition to the development that has beenundertaken and the improvements that have been constructed or are under construction therein to date. The balance ofthe land within the District is located within street and drainage rights-of-way, District plant sites, or is otherwise notavailable for residential or commercial development. See “INVESTMENT CONSIDERATIONS - Factors AffectingTaxable Values and Tax Payments,” “FUTURE DEVELOPMENT” and “TAX DATA - Principal 2019 Taxpayers.”

The District financed the underground water distribution, wastewater collection and storm drainage facilities to serveTimber Forest, Sections 1 and 4 through 7, Clayton’s Corner, Sections 1 through 4, Laurel Place, Sections 1 through 3,Woodland Pines, Sections 1 through 10, Atascocita Trace, Sections 1 through 6, Blackstone Creek, Section 1 through4, Villages at Tour 18, Sections 1 and 2, Phases 1 and 1A, off-site water distribution to serve Woodland Pines; awastewater treatment plant expansion; wastewater collection and detention facilities to serve Villages at Tour 18;clearing and grubbing of Villages at Tour 18, Section 1; water supply and storage facilities, a wastewater treatment plantand lift station, clearing and grubbing serving Villages at Tour 18, Section 2; stormwater pollution prevention plans forAtascocita Trace, Sections 4 through 6, Blackstone Creek, Sections 2 through 4, Villages at Tour 18, Section 2, andWoodland Pines, Sections 9 and 10; the remaining costs of a 12-inch water line along Will Clayton Parkway, Phases1, 1-A and 2; and a 16-inch water line along Atascocita Road, Phases 1 and 2; Wastewater Treatment Plant Expansion;and land acquisition costs for the detention basin for Villages at Tour 18 and Phase 1 Water Line/Joint Use Easements,and other facilities that are described in this Official Statement under the caption “THE SYSTEM” with the proceedsof the sale of the Prior Bonds. In addition to the components of the System that the District has financed with theproceeds of the sale of the Prior Bonds, the District expects to finance the acquisition or construction of additionalcomponents of the System with portions of the proceeds of the sale of bonds, if any, including reimbursement to someof its Developers, to be issued by the District in the future, including the District’s approximately $5,455,000 UnlimitedTax Bonds, Series 2020A that it expects to issue in approximately the fourth quarter of 2020. See “THE BONDS -Issuance of Additional Debt” and - “Use and Distribution of Bond Proceeds,” “INVESTMENT CONSIDERATIONS -Future Debt” and “THE SYSTEM.”

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As of March 1, 2020, the status of single-family residential lot development and home construction was as follows:

Residential Units

Lots Homes Under

Fully Under Construction CompletedSubdivision Developed Acres Development Acres Sold * Unsold Sold * Unsold Totals

Timber Forest Section 1 80 55.38 0 0 78 0 78 Section 4 121 23.01 0 0 121 0 121 Section 5 77 16.61 0 0 77 0 77 Section 6 96 19.42 0 0 96 0 96 Section 7 102 19.97 0 0 102 0 102

Clayton'sCorner Section 1 104 25.32 0 0 104 0 104 Section 2 108 17.87 0 0 108 0 108 Section 3 113 18.52 0 0 113 0 113 Section 4 88 14.22 0 0 88 0 88

Woodland Pines Section 1 60 29.24 0 0 60 0 60 Section 2 54 12.38 0 0 54 0 54 Section 3 106 19.86 0 0 106 0 106 Section 4 138 23.64 0 0 138 0 138 Section 5 69 12.15 0 0 69 0 69 Section 6 33 4.95 0 0 33 0 33 Section 7 123 18.73 0 0 123 0 123 Section 8 120 25.78 0 0 120 0 120 Section 9 120 23.46 0 0 120 0 120 Section 10 106 19.76 10 0 86 0 96

Laurel Place Section 1 120 21.22 0 0 120 0 120 Section 2 100 27.70 0 0 100 0 100 Section 3 69 12.45 0 0 69 0 69

Atascocita Trace Section 1 302 69.86 0 0 302 0 302 Section 2 34 4.87 0 0 34 0 34 Section 3 44 6.74 0 0 39 1 40 Section 4 22 3.35 0 0 22 0 22 Section 5 63 8.92 0 0 63 0 63 Section 6 146 21.19 11 0 51 0 62

Blackstone Creek Section 1 189 39.83 0 0 189 0 189 Section 2 46 7.83 0 0 46 0 46 Section 3 51 8.15 0 0 51 0 51 Section 4 65 15.43 0 0 65 0 65

Villages atTour 18 Section 1 113 36.82 0 0 112 1 113 Section 2 21 6.28 0 1 20 0 21

3,203 690.91 0 0 21 1 3,079 2 3,103

* Includes homes sold and contracted for sale. Homes under construction are, in some instances, subject to conditions of appraisal, loan application,approval and inspection. See “BUILDERS.”

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DEVELOPERS AND OTHER PRINCIPAL LAND OWNERS

The developer of Atascocita Trace (see “DEVELOPMENT AND HOME CONSTRUCTION” above) is ÉlanDevelopment, L.P. (“Élan”), a Texas limited partnership whose general partner is Élan, L.C., a Texas limited liabilitycorporation. Élan has completed the development of Atascocita Trace, Sections 1 through 6 (611 single-family residentiallots on approximately 114.93 acres) located within the District. Anglia Homes is constructing homes in Atascocita Traceas is described below under the caption “BUILDERS.” Élan owns no additional land located within the District.

The developer of Villages at Tour 18, Section 2 (21 single-family residential lots) located within the District (see“DEVELOPMENT AND HOME CONSTRUCTION” above) is KB Home Lone Star, Inc. (“KB Home”). KB Home isconstructing homes in Villages at Tour 18, Section 2 as is described below under the caption “BUILDERS.” KB Homeowns approximately 14.45 acres of land located within the District that are planned as future Villages of Tour 18, Section3 (50 single-family residential lots). However, since KB Home has no obligation to the District to develop Villages ofTour 18, Section 3, the District cannot represent that the development thereof will be undertaken.

The developer of Woodland Pines, Section 9 (120 single-family residential lots on approximately 23.46 acres) and Section10 (106 single-family residential lots on approximately 19.76 acres) is DS Woodland Pines, LLC (“DS Woodland Pines”). According to DS Woodland Pines, Liberty Homebuilders and Devon Street Homes are constructing homes in WoodlandPines, Section 10 as is described below under the caption “BUILDERS.” DS Woodland Pines owns no additional landlocated in the District.

The developer of approximately 63.19 acres of land located within the District that are located along Hunters TerraceDrive that have been provided underground water, sewer and drainage facilities and street paving to the perimeter thereofwas Austofield Partners No. I, Ltd., ("Austofield") a Texas limited partnership whose general partner is Austofield No.I, LLC, a Texas limited liability corporation whose president is Yousef Panahpour. ATA Development, LP ("ATA") aTexas limited partnership whose general partner is ATA GP Developers, L.L.C., a Texas limited liability corporationwhose president is Yousef Panahpour, developed such land on behalf of Austofield. Austofield has sold approximately10.57 of such acres that are expected to be utilized for future multi-family development to Creekstone Developments, Inc.("Creekstone"). Austofield has sold approximately 9.03 of such acres being utilized for future multi-family developmentto The Park at Tour 18 LLC ("Tour 18"), on which the 241-unit Tour 18 Apartments are currently under construction. Austofield has conveyed approximately 13.60 of such acres expected to be developed for future commercial usage toAtasca Lake Partners No I Ltd. ("ALP"), a Texas limited partnership whose general partner is Atasca Lake No I, L.L.C.,a Texas limited liability corporation whose president is Yousef Panahpour. The remaining approximately 30.0 of suchacres are contained within storm water detention facilities, pipeline or electrical easements (see "Development and HomeConstruction" above). ATA and Austofield do not own any property in the District. Since ALP has no obligation to theDistrict to undertake any development of the approximately 13.60 of such acres that are expected to be utilized for futurecommercial development that are owned by ALP; Creekstone has no obligation to the District to undertake anydevelopment of the approximately 10.57 of such acres that are expected to be utilized for future multi-family residentialdevelopment that are owned by Creekstone; and Tour 18 has no obligation to the District to complete the constructionof the 241-unit Tour 18 Apartments on the approximately 9.03 of such acres that are owned by Tour 18; and since noparty, including ALP, Creekstone or Tour 18, has any obligation to the District to undertake or complete the constructionof any above-ground improvements on any of such land, the District cannot represent that any development will beundertaken on any of such land in addition to the development undertaken thereon to date, and cannot represent that anyabove-ground multi-family residential, commercial or other above-ground improvements will be constructed or completedon any of such land.

The owner of approximately 64.13 currently undeveloped acres of land located within the District that are available forfuture development (see “DEVELOPMENT AND HOME CONSTRUCTION” above) is Sowell Interests-Atascocita, L.P.(“SIA”), a Texas limited partnership whose general partner is Sowell Atascocita, Inc., a Texas corporation whosepresident is Stephen L. Brown. SIA has not reported any definitive plan to the District covering any of such acres. SinceSIA has no obligation to the District to develop any of such currently undeveloped acres at any particular pace or at all,the District cannot represent that any development will be undertaken on any of such currently undeveloped acres.

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The owner of approximately 3.40 currently undeveloped acres of land located within the District that are available forfuture development is WP70, LP (“WP70"). However, WP70 has no obligation to the District to develop any of suchcurrently undeveloped acres at any particular pace or at all, the District cannot represent that any development will beundertaken on any of such undeveloped acres.

Humble Independent School District owns 81.13 acres of land located within the District which property is exempt fromtaxation and which is expected to construct schools and facilities on such acreage.

As is reflected on the District’s 2019 tax rolls, approximately 159.71 of such acres that are available for futuredevelopment are owned by Rancho Del Austin Partners, L.P. (“RDA”). Approximately 10.52 of such acres that areavailable for future development are owned by KTB Holdings LP, which are expected to be used for future commercialdevelopment. The remaining acres that are available for future development are owned by multiple other parties, noneof which has reported any definitive development plan to the District covering any of such acres. Since none of RDAor any of such other parties has any obligation to the District to develop any of such currently undeveloped acres at anyparticular pace or at all, the District cannot represent that any development will be undertaken on any of such currentlyundeveloped acres.

Collective reference is made in this Official Statement to Élan, KB Home, DS Woodland Pines and Tour 18 as the“Developers.”

BUILDERS

According to Élan, homes which Anglia Homes is currently constructing in Atascocita Trace range in size fromapproximately 1,169 to 2,099 square feet of living area and in sales price from approximately $170,990 to $207,990.

According to KB Home, homes which it is currently constructing in Villages of Tour 18 range in size from approximately2,321 to 4,307 square feet of living area and in sales price from approximately $215,001 to $482,000.

According to DS Woodland Pines, homes that Liberty Homebuilders and Devon Street Homes are currently constructingin Woodland Pines range in size from approximately 1,582 to 4,104 square feet of living area and in sales price fromapproximately $169,000 to $350,000.

Collective reference is made in this Official Statement to Anglia Homes, KB Home, Liberty Homebuilders and DevonStreet Homes as the “Builders.”

FUTURE DEVELOPMENT

As is described above under the caption “DEVELOPMENT AND HOME CONSTRUCTION,” the development ofTimber Forest, Sections 1 and 4 through 7, Clayton’s Corner, Sections 1 through 4, Woodland Pines, Sections 1 through10, Laurel Place, Sections 1 through 3, Atascocita Trace, Sections 1 through 6, Blackstone Creek, Sections 1 through 4,and Villages at Tour 18, Sections 1 and 2, totaling 3,203 single-family residential lots on a total of approximately 690.91acres within the District, is complete. The District also contains unrestricted reserves aggregating (i) approximately 73.89acres which were originally intended to be developed for future multi family residential or commercial usage consistingof (a) approximately 23.74 acres of reserves platted as Timber Forest, Section 1, (b) approximately 39.51 acres of reservesplatted as Timber Forest, Section 2, (c) approximately 10.64 acres of reserves platted as Timber Forest, Section 3, and(d) an aggregate of approximately 17.14 acres of street rights of way located in such sections, (ii) approximately 63.19total acres that are located along Hunters Terrace Drive, on approximately 9.03 acres of which the 241-unit Tour 18Apartments are currently under construction, approximately 10.57 acres of which are expected to be developed for futuremulti-family residential usage, approximately 13.60 acres of which are expected to be developed for future commercialusage and the remaining approximately 30.0 acres of which are contained within storm water detention facilities andpipeline or electrical easements, and (iii) approximately 33.14 additional acres of land used for storm water detentionfacilities. According to the District's Engineer, underground water, sewer and drainage facilities and street paving to serveall of such unrestricted reserves have been constructed to (or are in close proximity to) the perimeters of the tracts whichthey serve. The District is unaware of any specific development or construction of above ground improvements planned

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for any of the reserves located in Timber Forest, Sections 1 through 3 or the acres that are located along Hunters TerraceDrive described above in addition to the development that has been undertaken and the improvements that have beenconstructed or are under construction therein to date. Approximately 365.94 acres of land located in the District, exclusiveof certain easements, rights-of-way, and other land not available for development, are currently undeveloped. Approximately 3.40 of such acres that are available for future development are owned by WP70, LP (defined above underthe caption “DEVELOPERS AND OTHER PRINCIPAL LAND OWNERS”). Humble Independent School District owns81.13 acres of land located within the District on which it expects to construct schools and facilities. Approximately 14.45of such undeveloped acres are owned by KB Home. It is anticipated that such currently undeveloped acreage will bedeveloped in the future as Villages at Tour 18, Section 3 (approximately 50 single-family residential lots). However, KBHome is under no obligation to the District to develop such land, and may sell such land at any time at its sole discretion. Approximately 64.13 of such currently undeveloped acres are owned by SIA. SIA has not reported any definitivedevelopment plan to the District covering any of such acres. SIA has no obligation to the District to develop such land,and may sell such land at any time at its sole discretion. See “DEVELOPERS AND OTHER PRINCIPAL LANDOWNERS” above for descriptions of such parties. As is reflected on the District’s 2019 tax rolls, approximately 159.71of such acres that are available for future development are owned by RDA. Approximately 10.52 of such acres that areavailable for future development are owned by KTB Holdings LP (“KTB”), which are expected to be used for futurecommercial development. The remaining acres that are available for future development are owned by multiple otherparties, none of which has reported any definitive development plan to the District covering any of such acres. None ofWP 70, KB Home, SIA, RDA, KTB, or any other party is under any obligation to the District to develop such land, andany of such parties may sell such land at any time at its sole discretion. Therefore, the District can make no representationas to when, or whether, the undeveloped portions of the District might be developed, or the ultimate usage of any of theaforementioned unrestricted reserves. If the undeveloped portions of the District are eventually developed, additions tothe District's water, sanitary sewer and drainage systems required to service such undeveloped acreage may be financedby future issues of the District's bonds. See “TAX DATA - Principal 2019 Taxpayers.” The balance of the land that islocated within the District is located within street and drainage rights-of-way, District plant sites, or is otherwise notavailable for residential or commercial development. See “INVESTMENT CONSIDERATIONS - Factors AffectingTaxable Values and Tax Payments” and “TAX DATA - Principal 2019 Taxpayers.”

In the opinion of the District's consulting engineer, BGE, Inc. (the “Engineer”), the remaining $19,165,000 authorizedbonds which remain unissued after the sale of the Bonds, plus available surplus funds, may not be adequate to financethe acquisition or construction of all water, wastewater and drainage facilities necessary to provide service to all of thedevelopable, undeveloped portions of the District. In order for the District to issue bonds in an amount greater than the$19,165,000 that is currently authorized, the District would be required to obtain voter authorization to issue additionalbonds at an election held for such purpose. The District cannot predict the outcome of such election if it is called. TheDistrict makes no representation that any future development will be undertaken in the District. In addition to thecomponents of the System that the District has financed with the proceeds of the sale of the Prior Bonds, the Districtexpects to finance the acquisition or construction of additional components of the System with portions of the proceedsof the sale of bonds, if any, to be issued by the District in the future, including the District’s approximately $5,455,000Unlimited Tax Bonds, Series 2020A that it expects to issue in approximately the fourth quarter of 2020. See “THEBONDS - Issuance of Additional Debt” and - “Use and Distribution of Bond Proceeds,” “INVESTMENTCONSIDERATIONS - Future Debt” and “THE SYSTEM.”

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AERIAL PHOTOGRAPH OF THE DISTRICT(taken April 2020)

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PHOTOGRAPHS TAKEN WITHIN THE DISTRICT(taken May 2020)

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PHOTOGRAPHS TAKEN WITHIN THE DISTRICT(taken May 2020)

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DISTRICT DEBT

Debt Service Requirement Schedule

The following schedule sets forth the debt service requirements on the Remaining Outstanding Bonds, less the debt servicerequirements on the Refunded Bonds, plus the principal and interest requirements of the Bonds.

Less: Debt CurrentCurrent Service on Plus - The Bonds Total New

Year Ending Total Debt Refunded Principal Debt ServiceDecember 31 Service Bonds (Due 9-1) Interest Requirements

2020 $ 3,342,061 $ 83,134 $ 35,000 $ 32,000 $ 3,325,9272021 3,318,238 166,269 5,000 126,600 3,283,5692022 3,317,613 561,269 400,000 126,400 3,282,7442023 3,333,425 564,419 420,000 110,400 3,299,4062024 3,354,300 546,606 420,000 93,600 3,321,2942025 3,349,238 553,444 445,000 76,800 3,317,5942026 3,336,894 554,100 460,000 59,000 3,301,7942027 3,340,081 558,700 470,000 49,800 3,301,1812028 3,338,456 562,600 485,000 40,400 3,301,2562029 3,330,813 568,400 500,000 30,700 3,293,1132030 3,324,413 568,200 510,000 20,700 3,286,9132031 3,325,525 577,200 525,000 10,500 3,283,8252032 3,390,550 3,390,5502033 3,384,775 3,384,7752034 3,380,769 3,380,7692035 3,373,956 3,373,9562036 3,338,744 3,338,7442037 3,435,975 3,435,9752038 2,512,969 2,512,9692039 2,509,406 2,509,4062040 2,529,281 2,529,2812041 2,519,906 2,519,9062042 2,532,344 2,532,3442043 2,590,531 2,590,5312044 1,567,969 1,567,9692045 1,949,219 1,949,2192046 2,217,188 2,217,188

$81,244,639 $5,864,341 $4,675,000 $776,900 $80,832,198

Average Annual Requirements (2020-2037) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,327,966Maximum Annual Requirement (2037) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,435,975

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Bonded Indebtedness

2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $560,046,667(a)(As of January 1, 2019)See “TAX DATA” and “TAX PROCEDURES.”

Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $638,870,325(b)(As of March 1, 2020)See “TAX DATA” and “TAX PROCEDURES.”

Direct DebtRemaining Outstanding Bonds (as defined herein) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,040,000The Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,675,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,715,000(c)

Estimated Overlapping Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,597,819(c)

Total Direct and Estimated Overlapping Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,312,819(c)

Direct Debt Ratio: as a percentage of 2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.23%: as a percentage of Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . 8.09%

Direct and Estimated Overlapping Debt Ratio: as a percentage of 2019 Assessed Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34%: as a percentage of Estimated Valuation at March 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . 12.57%

Debt Service Fund Balance Estimated as of Delivery of the Bonds . . . . . . . . . . . . . . . . . . . $ 5,644,821(d)

General Fund Balance at April 3, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,147,799

2019 Tax Rate per $100 of Assessed ValuationDebt Service . . . . . . . . . . . . . . . . . . . . . . . . $0.62Maintenance . . . . . . . . . . . . . . . . . . . . . . . . 0.27Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.89(e)

__________________________________(a) As of January 1, 2019. All property in the District is valued on the tax rolls by the Harris County Appraisal

District (the “Appraisal District”) at 100% of assessed value as of January 1 of each year. The District's tax rollis certified by the Harris County Appraisal Review Board (the “Appraisal Review Board”).

(b) Provided by the Appraisal District for informational purposes only, this amount is an estimate of the value of alltaxable property located within the District as of March 1, 2020, and includes an estimate of values resulting fromthe construction of taxable improvements from January 1, 2019, through February 29, 2020. No taxes were leviedfor 2019 against any values added since January 1, 2019. The ultimate Assessed Valuation of any land andimprovements added from January 1, 2019, through December 31, 2019, which will be placed on the District's2020 tax roll, may vary significantly from such estimate once the Appraisal Review Board certifies the valuethereof in 2020. Moreover, the ultimate Assessed Valuation of any land and improvements added from January1, 2020, through February 29, 2020, which will be placed on the District's 2021 tax roll, may vary significantlyfrom such estimate once the Appraisal Review Board certifies the value thereof in 2021.

(c) See “INVESTMENT CONSIDERATIONS - Future Debt.” In addition to the components of the System theacquisition or construction of which the District has financed with portions of the proceeds of the Prior Bonds,the District expects to finance its share of the cost of acquisition or construction of additional components of theSystem with portions of the proceeds of the sale of bonds, if any, including reimbursement to some of itsDevelopers, to be issued by the District in the future, including the District’s approximately $5,455,000 UnlimitedTax Bonds, Series 2020A that it expects to issue in approximately the fourth quarter of 2020. See THE BONDS -Issuance of Additional Debt,” “INVESTMENT CONSIDERATIONS - Future Debt,” and “THE SYSTEM.”

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(d) Neither Texas law nor the Bond Resolution requires the District to maintain any particular sum in the DebtService Fund. Such sum gives effect to the payment by the District of its debt service requirements that were dueon March 1, 2020, and the contribution of $9,000 to the refunding of the Refunded Bonds. The District’sremaining debt service requirements for 2020, which are due on September 1, 2020, consist of $2,302,479 ofprincipal and interest on the Outstanding Bonds and a three-month interest payment on the Bonds and a principalpayment of $35,000 on the Bonds.

(e) The District has levied a debt service tax for 2019 in the amount of $0.62 per $100 of Assessed Valuation. TheDistrict also levied a maintenance tax of $0.27 per $100 of Assessed Valuation for 2019. Therefore, the District'scombined total tax for 2019 is $0.89 per $100 of Assessed Valuation. As is enumerated in this Official Statementunder the caption “TAX DATA - Estimated Overlapping Taxes,” the total of the 2019 tax levies of all overlappingtaxing units which levy taxes upon property located in the District, plus the District's 2019 rate, is $3.13285. TheDistrict's tax rate of $0.89 per $100 of Assessed Valuation and such total rate of $3.13285 per $100 of AssessedValuation are higher than the individual and total tax levies of some municipal utility districts in the Houstonmetropolitan area, including the area of the District, but are within the range of the individual and total levies ofmunicipal utility districts in the Houston metropolitan area and the area of the District which are in stages ofdevelopment comparable with the District. See “INVESTMENT CONSIDERATIONS - Factors AffectingTaxable Values and Tax Payments.”

Estimated Direct and Overlapping Debt Statement

Other governmental entities whose boundaries overlap the District's have outstanding bonds payable from ad valoremtaxes. The following statement of direct and estimated overlapping ad valorem tax debt was developed from informationcontained in “Texas Municipal Reports,” published by the Municipal Advisory Council of Texas, or other availableinformation. Except for the amount relating to the District, the District has not independently verified the accuracy orcompleteness of such information, and no person is entitled to rely upon such information as being accurate or complete.Furthermore, certain of the entities listed below may have issued additional bonds since the dates stated in this table, andsuch entities may have programs requiring the issuance of substantial amounts of additional bonds, the amount of whichcannot presently be determined. Political subdivisions overlapping the District are authorized by Texas law to levy andcollect ad valorem taxes for operation, maintenance and/or general revenue purposes in addition to taxes for payment oftheir debt, and some are presently levying and collecting such taxes.

Outstanding Debt Overlapping Taxing Jurisdiction as of March 1, 2020 Percent Amount

Harris County* $1,885,182,125 0.11571% $ 2,181,252Harris County Department of Education 6,320,000 0.11571 7,313Harris County Flood Control District 83,075,000 0.11571 96,122Port of Houston Authority 572,569,397 0.11571 662,492Harris County Hospital District 55,005,000 0.11571 63,644Humble Independent School District 757,495,000 3.17802 24,073,319Lone Star College System 572,225,000 0.26452 1,513,677

TOTAL ESTIMATED OVERLAPPING DEBT $28,597,819

TOTAL DIRECT DEBT (the Bonds and the Outstanding Bonds) 51,715,000

TOTAL DIRECT AND ESTIMATED OVERLAPPING DEBT $80,312,819

____________________________* Harris County Toll Road Bonds are considered to be self-supporting.

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Debt Ratios

% of 2019 Estimated Assessed Valuation atValuation March 1, 2020

Direct Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.23% 8.09%Direct and Estimated Overlapping Debt . . . . . . . . . . . . . . . . 14.34% 12.57%

TAX DATA

Debt Service Tax

All taxable property within the District is subject to the assessment, levy, and collection by the District of an annual advalorem tax, without legal limitation as to rate or amount, sufficient to pay principal of and interest on the RemainingOutstanding Bonds and the Bonds (see “TAX PROCEDURES”). The Board of Directors of the District has in its BondResolution covenanted to assess and levy for each year that all or any part of the Bonds remain outstanding and unpaida tax ample and sufficient to produce funds to pay the principal of and interest on the Bonds (see “THE BONDS” and“INVESTMENT CONSIDERATIONS”). The District levied a tax for debt service for 2019 at a rate of $0.62 per $100assessed valuation.

Tax Rate Limitation

Debt Service: Unlimited (no legal limit as to rate or amount).Maintenance: $1.00 per $100 Assessed Valuation.

Maintenance Tax

The Board of Directors of the District has the statutory authority to levy and collect an annual ad valorem tax formaintenance of the District's improvements, if such maintenance tax is authorized by a vote of the District's electorate. On May 1, 1993, the District voters authorized the levy of such a maintenance tax in the maximum amount of $1.00 pereach $100 of Assessed Valuation. Such tax is levied in addition to taxes which the District is authorized to levy forpaying principal of and interest on the Bonds, the Outstanding Bonds and any parity bonds which may be issued in thefuture. The District has levied a maintenance tax of $0.27 per $100 of Assessed Valuation for 2019.

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Historical Values and Tax Collection History

Cumulative % Collections

Assessed Tax Adjusted Current & Year EndingTax Year Valuation Rate(a) Levy Prior Years(b) 9/30

2009 $260,100,672 $1.132 $2,942,357 99.96% 20102010 253,810,353 1.182 2,998,019 99.97 20112011 254,241,759 1.200 3,048,745 99.97 20122012 243,705,881 1.200 2,923,603 99.92 20132013 257,277,363 1.200 3,086,464 99.90 20142014 299,725,604 1.090 3,267,009 99.91 20152015 355,291,735 1.050 3,730,563 99.89 20162016 401,385,837 1.030 4,134,274 99.76 20172017 455,657,726 0.980 4,465,426 99.80 20182018 495,952,284 0.930 4,612,356 99.78 20192019 560,046,667 0.890 4,984,415 97.30(c) 2020

_____________________________(a) Per $100 of assessed valuation.(b) Such percentages reflect cumulative total collections for each year from the time each respective annual tax was

levied through March 31, 2020. The amount of tax collected for each levy on a current basis (by September 30of the year following each respective annual levy) is not reflected in this statement.

(c) As of March 31, 2020. In process of collection.

Tax Rate Distribution

2019 2018 2017 2016 2015

Debt Service $0.62 $0.65 $0.68 $0.73 $0.80Maintenance 0.27 0.28 0.30 0.30 0.25 Total $0.89 $0.93 $0.98 $1.03 $1.05

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Analysis of Tax Base

The following table illustrates the composition of property located within the District for the last five years.

2019 2018 2017Assessed Value % Assessed Value % Assessed Value %

Land $ 90,843,579 16.22% $ 85,324,462 17.21% $ 82,080,433 18.01%Improvements 498,373,228 88.99 429,172,808 86.56 399,754,284 87.73Personal Property 9,173,492 1.64 9,099,071 1.84 9,578,342 2.10Uncertified (38,343,632) (6.85) (27,792,763) (5.61) (35,755,333) (7.85)Exemptions $560,046,667 100.00% $495,803,578 100.00% $455,657,726 100.00%TOTAL

2016 2015Assessed Value % Assessed Value %

Land $ 78,092,655 19.46% $ 73,553,060 20.70%Improvements 357,987,334 89.19 326,889,444 92.01Personal Property 8,711,770 2.17 8,290,479 2.33Exemptions (43,405,922) (10.81) (53,441,248) (15.04)

$401,385,837 100.00% $355,291,735 100.00%

Principal 2019 Taxpayers

Based upon information supplied by the District's Tax Assessor/Collector, the following table lists principal Districttaxpayers, type of property owned by such taxpayers, and the assessed valuation of such property as of January 1, 2019. The information reflects the composition of the Appraisal District's record of property ownership as of January 1, 2019.

Assessed Valuation % of 2019Taxpayer Type of Property 2019 Tax Roll Tax Roll

Atascocita Eagles Nest LLC Commercial $ 5,100,000 0.91%MSC Humble LLC Commercial 4,669,129 0.83SRP Sub LLC Homes and Lots 3,538,777 0.63Rancho Del Austin Partners, L.P. Land 3,021,415 0.54Centerpoint Energy Houston Electric Personal Property 2,843,050 0.51Progress Residential Borrower 5 LLC* Homes and Lots 2,553,290 0.46Avalon MCO Holdings LP Homes and Lots 2,274,791 0.41Progress Residential Borrower 9 LLC* Homes and Lots 1,991,947 0.362018 4 IH Borrower LP Homes and Lots 1,950,754 0.35Eagle Hardware LLC Commercial 1,947,305 0.35

$29,890,458 5.35%

__________* Related Parties

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Exemptions

The District has adopted a residential homestead exemption for persons 65 years or older or disabled persons in theamount of $25,000 of appraised value, and has not granted a general residential homestead exemption. See “TAXPROCEDURES.”

Reappraisal of Property after Disaster

The Texas Tax Code provides that the governing body of a taxing unit located within an area declared to be a disasterarea by the governor of the State of Texas may authorize reappraisal of all property damaged in the disaster at its marketvalue immediately after the disaster. Neither the District nor Harris County adopted an order to reappraise the propertyin the District. See “TAXING PROCEDURES - Reappraisal of Property after Disaster.”

Tax Rate Calculations

The tax rate calculations set forth below are presented to indicate the tax rates per $100 of assessed valuation whichwould be required to meet certain debt service requirements if no growth in the District's tax base occurs beyond the2019 Assessed Valuation or the Estimated Valuation at March 1, 2020. The calculations assume collection of 95% oftaxes levied, no use of District funds on hand, and the sale of no bonds by the District except the Bonds and the PriorBonds.

Average Annual Debt Service Requirements (2020-2037) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,327,966

Tax Rate of $0.63 on the 2019 Assessed Valuation ($560,046,667) produces . . . . . . . . . . . . . . . . $3,351,879Tax Rate of $0.55 on the Estimated Valuation at March 1, 2020 ($638,870,325) produces . . . . . . $3,338,097

Maximum Annual Debt Service Requirement (2037) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,435,975

Tax Rate of $0.65 on the 2019 Assessed Valuation ($560,046,667) produces . . . . . . . . . . . . . . . . $3,458,288Tax Rate of $0.57 on the Estimated Valuation at March 1, 2020 ($638,870,325) produces . . . . . . $3,459,483

The District levied a debt service tax of $0.62 per $100 of Assessed Valuation plus a maintenance tax of $0.27 per $100of Assessed Valuation for 2019. As the above table indicates, the 2019 debt service rate is sufficient to pay the averageannual debt service requirements and the maximum annual debt service requirement on the Bonds and the RemainingOutstanding Bonds, given taxable values in the District at the level of the Estimated Valuation at March 1, 2020,assuming a tax collection rate of 95%, no use of funds on hand, and the issuance of no additional bonds by the District. As is illustrated in this Official Statement under the caption “TAX DATA - Historical Values and Tax CollectionHistory,” as of March 31, 2020, the District has collected an average of 99.89% of its tax for the period 2009 through2018, and its 2019 levy, which is in the process of collection, was 97.30% collected as of such date. Moreover, theDistrict's Debt Service Fund balance is estimated to be $5,644,821 as of the date of delivery of the Bonds. Althoughneither Texas law nor the Bond Resolution requires that any specific amount be retained in the Debt Service Fund at anytime, the District has in the past applied earnings from the investment of monies held in the Debt Service Fund to meetthe debt service requirements of the Prior Bonds. See “APPENDIX B - INDEPENDENT AUDITOR’S REPORT ANDFINANCIAL STATEMENTS.” Therefore, the District anticipates that it will be able to meet the debt servicerequirements on the Bonds and the Remaining Outstanding Bonds without increasing the tax rate for debt service abovethe debt service rate which the District levied for 2019 - $0.62 per $100 of Assessed Valuation. However, the Districtcan make no representation that the taxable property values in the District will increase in the future or will maintain avalue sufficient to support the aforementioned tax rate or to justify continued payment of taxes by property owners. See “INVESTMENT CONSIDERATIONS - Factors Affecting Taxable Values and Tax Payments” and “TAXPROCEDURES.” In addition to the components of the System the acquisition or construction of which the District hasfinanced with portions of the proceeds of the Prior Bonds, the District expects to finance its share of the cost ofacquisition or construction of additional components of the System with portions of the proceeds of the sale of bonds,if any, including reimbursement to some of its Developers, to be issued by the District in the future, including theDistrict’s approximately $5,455,000 Unlimited Tax Bonds, Series 2020A that it expects to issue in approximately thefourth quarter of 2020. See “THE BONDS - Issuance of Additional Debt,” “INVESTMENT CONSIDERATIONS -Future Debt,” and “THE SYSTEM.”

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Estimated Overlapping Taxes

Property located within the District is subject to taxation by several taxing authorities in addition to the District. Set forthbelow is a compilation of all 2019 taxes levied upon property located within the District plus the District’s 2019 levy. Under Texas law, ad valorem taxes levied by each taxing authority other than the District entitled to levy taxes againstproperty located within the District create a lien which is on a parity with the tax lien of the District. In addition to thead valorem taxes required to make the debt service payments on bonded indebtedness of the District and of such otherjurisdictions (see “DISTRICT DEBT - Estimated Direct and Overlapping Debt Statement”), certain taxing jurisdictionsare authorized by Texas law to assess, levy and collect ad valorem taxes for operation, maintenance, administrativeand/or general revenue purposes.

Taxing Jurisdiction 2019 Tax Rate

Harris County $0.40713Harris County Hospital District 0.16591Harris County Flood Control District 0.02792Harris County Department of Education 0.00500Port of Houston Authority 0.01074Lone Star College System 0.10780Humble Independent School District 1.41835Harris County Emergency Service District No. 46 0.10000The District * 0.89000

$3.13285

_________________________* The District has levied a total tax of $0.89 per $100 of Assessed Valuation for 2019, consisting of a debt service

tax of $0.62 per $100 of Assessed Valuation and a maintenance tax of $0.27 per $100 of Assessed Valuation.

TAX PROCEDURES

Authority to Levy Taxes

The Board is authorized to levy an annual ad valorem tax, without legal limitation as to rate or amount, on all taxableproperty within the District in sufficient amount to pay the principal of and interest on the Bonds and any additionalbonds payable from taxes which the District may hereafter issue, see “INVESTMENT CONSIDERATIONS - FutureDebt,” and to pay the expenses of assessing and collecting such taxes. The District agrees in the Bond Resolution to levysuch a tax from year to year as described more fully above under “THE BONDS - Source of Payment.” Under Texaslaw, the Board is also authorized to levy and collect annual ad valorem taxes for the operation and maintenance of theDistrict and the System and for the payment of certain contractual obligations. See “TAX DATA - Maintenance Tax.”

Property Tax Code and County-Wide Appraisal District

Title I of the Texas Tax Code (the “Property Tax Code”), specifies the taxing procedures of all political subdivisionsof the State of Texas, including the District. Provisions of the Property Tax Code are complex and are not fullysummarized here. The Property Tax Code requires, among other matters, county-wide appraisal and equalization oftaxable property values and establishes in each county of the State an appraisal district with the responsibility forrecording and appraising property for all taxing units within a county and an appraisal review board with responsibilityfor reviewing and equalizing values established by the appraisal district. The Harris County Appraisal District (the“Appraisal District”) has the responsibility of appraising property for all taxing units within Harris County, includingthe District. Such appraisal values will be subject to review and change by the Harris County Appraisal Review Board(the “Appraisal Review Board”). The appraisal roll, as approved by the Appraisal Review Board, will be used by theDistrict in establishing its tax rolls and tax rate.

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Reappraisal of Property after Disaster

The Texas Tax Code provides that the governing body of a taxing unit located within an area declared to be a disasterarea by the governor of the State of Texas may authorize reappraisal of all property damaged in the disaster at its marketvalue immediately after the disaster. For reappraised property, the taxes are pro-rated for the year in which the disasteroccurred. The taxing unit assesses taxes prior to the date the disaster occurred based upon market value as of January1 of that year. Beginning on the date of the disaster and for the remainder of the year, the taxing unit assesses taxes onthe reappraised market value of the property. See “TAX DATA - Reappraisal of Property after Disaster.”

Property Subject to Taxation by the District

Except for certain exemptions provided by Texas law, all real property, tangible personal property held or used for theproduction of income, mobile homes and certain categories of intangible personal property with a tax situs in the Districtare subject to taxation by the District. Principal categories of exempt property include, but are not limited to: propertyowned by the State of Texas or its political subdivisions, if the property is used for public purposes; property exemptfrom ad valorem taxation by federal law; certain household goods, family supplies and personal effects; certain goods,wares, and merchandise in transit; certain farm products owned by the producer; certain property of charitableorganizations, youth development associations, religious organizations, and qualified schools; designated historical sites;and most individually-owned automobiles. In addition, the District may by its own action exempt residential homesteadsof persons 65 years or older and certain disabled persons, to the extent deemed advisable by the Board of Directors ofthe District. The District may be required to offer such exemptions if a majority of voters approve same at an election.The District would be required to call an election upon petition by twenty percent (20%) of the number of qualifiedvoters who voted in the preceding election. The District is authorized by statute to disregard exemptions for the disabledand elderly if granting the exemption would impair the District's obligation to pay tax supported debt incurred prior toadoption of the exemption by the District. Furthermore, the District must grant exemptions to disabled veterans, orcertain surviving dependents of disabled veterans if requested, but only to the maximum extent of $5,000 to $12,000 ofassessed valuation depending upon the disability rating of the veteran, if such rating is less than 100%. A veteran whoreceives a disability rating of 100% is entitled to the exemption for the full amount of the residential homestead. Additionally, subject to certain conditions, the surviving spouse of a disabled veteran is entitled to an exemption for thefull value of the veteran’s residence homestead to which the disabled veterans’ exemption applied. A partially disabledveteran or certain surviving spouses of partially disabled veterans are entitled to an exemption from taxation of apercentage of the appraised value of their residence homestead in an amount equal to the partially disabled veteran’sdisability rating if (i) the residence homestead was donated by a charitable organization at no cost to the disabled veteranor, (ii) the residence was donated by a charitable organization at some cost to the disabled veteran if such cost is less thanor equal to fifth percent (50%) of the total good faith estimate of the market value of the residence as of the date thedonation is made. Also, the surviving spouse of (i) a member of the armed forces or, (ii) a first responder as definedunder the Texas law, who was killed in action is, subject to certain conditions, entitled to an exemption of the totalappraised value of the surviving spouse’s residence homestead, and subject to certain conditions, an exemption up tothe same amount may be transferred to a subsequent residence homestead of the surviving spouse. The surviving spouseof a first responder who was killed or fatally injured in the line of duty is, subject to certain conditions, also entitled toan exemption of the total appraised value of the surviving spouse's residence homestead, and, subject to certainconditions, an exemption up to the same amount may be transferred to a subsequent residence homestead of the survivingspouse.

Residential Homestead Exemptions: The Property Tax Code authorizes the governing body of each politicalsubdivision in the State to exempt up to twenty percent (20%), but not less than $5,000, of the appraised marketvalue of residential homesteads from ad valorem taxation. Where ad valorem taxes have previously been pledgedfor the payment of debt, the governing body of a political subdivision may continue to levy and collect taxes againstthe exempt value of the homesteads until the debt is discharged, if the cessation of the levy would impair theobligations of the contract by which the debt was created. The adoption of a homestead exemption may beconsidered each year, but must be adopted before July 1. See “TAX DATA - Exemptions.”

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Freeport Goods Exemption: A “Freeport Exemption” applies to goods, wares, ores, and merchandise other thanoil, gas, and petroleum products (defined as liquid and gaseous materials immediately derived from refiningpetroleum or natural gas), and to aircraft or repair parts used by a certified air carrier acquired in or imported intoTexas which are destined to be forwarded outside of Texas and which are detained in Texas for assembling, storing,manufacturing, processing or fabricating for less than 175 days. Although certain taxing units may take officialaction to tax such property in transit and negate such exemption, the District does not have such an option. A“Goods-in-Transit” Exemption is applicable to the same categories of tangible personal property which are coveredby the Freeport Exemption, if, for tax year 2011 and prior applicable years, such property is acquired in or importedinto Texas for assembling, storing, manufacturing, processing, or fabricating purposes and is subsequentlyforwarded to another location inside or outside of Texas not later than 175 days after acquisition or importation, andthe location where said property is detained during that period is not directly or indirectly owned or under the controlof the property owner. For tax year 2012 and subsequent years, such Goods-in-Transit Exemption includes tangiblepersonal property acquired in or imported into Texas for storage purposes only if such property is stored under acontract of bailment by a public warehouse operator at one or more public warehouse facilities in Texas that are notin any way owned or controlled by the owner of such property for the account of the person who acquired orimported such property. A property owner who receives the Goods-in-Transit Exemption is not eligible to receivethe Freeport Exemption for the same property. Local taxing units such as the District may, by official action andafter public hearing, tax goods-in-transit personal property. A taxing unit must exercise its option to tax goods-in-transit property before January 1 of the first tax year in which it proposes to tax the property at the time and in themanner prescribed by applicable law. The District has taken official action to allow taxation of all such goods-in-transit personal property for all prior and subsequent years.

Tax Abatement

The City of Houston (if it were to annex the District) and Harris County may designate all or part of the District as areinvestment zone, and the District, Harris County, and the City of Houston may thereafter enter into tax abatementagreements with the owners of property within the zone. The tax abatement agreements may exempt from ad valoremtax, by the applicable taxing jurisdictions, and by the District, for a period of up to ten years, all or any part of anyincrease in the assessed valuation of property covered by the agreement over its assessed valuation in the year in whichthe agreement is executed, on the condition that the property owner make specified improvements or repairs to theproperty in conformity with a comprehensive plan. According to the District's Tax Assessor/Collector, to date, none ofthe area within the District has been designated as a reinvestment zone. Each taxing jurisdiction has discretion todetermine terms for its tax abatement agreements without regard to the terms approved by the other taxing jurisdictions.

Valuation of Property for Taxation

Generally, property in the District must be appraised by the Appraisal District at market value as of January 1 of eachyear. Once an appraisal roll is prepared and finally approved by the Appraisal Review Board, it is used by the Districtin establishing its tax rolls and tax rate. Assessments under the Property Tax Code are to be based on one hundredpercent (100%) of market value, as such is defined in the Property Tax Code.

The Property Tax Code permits land designated for agricultural use, open space or timberland to be appraised at its valuebased on the land's capacity to produce agricultural or timber products rather than at its fair market value. The PropertyTax Code permits under certain circumstances that residential real property inventory held by a person in the trade orbusiness be valued at the price all of such property would bring if sold as a unit to a purchaser who would continue thebusiness. Provisions of the Property Tax Code are complex and are not fully summarized here. Landowners wishing toavail themselves of the agricultural use, open space or timberland designation or residential real property inventorydesignation must apply for the designation and the appraiser is required by the Property Tax Code to act on eachclaimant's right to the designation individually. A claimant may waive the special valuation as to taxation by one politicalsubdivision while claiming it for another. If a claimant receives the agricultural use designation and later loses it bychanging the use of the property or selling it to an unqualified owner, the District can collect taxes based on the new use,including taxes for the previous three years for agricultural use and taxes for the previous five years for open space landand timberland.

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The Property Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property to updateappraisal values. The plan must provide for appraisal of all real property in the Appraisal District at least once every three(3) years. It is not known what frequency of reappraisals will be utilized by the Appraisal District or whether reappraisalswill be conducted on a zone or county-wide basis. The District, however, at its expense, has the right to obtain from theAppraisal District a current estimate of appraised values within the District or an estimate of any new property orimprovements within the District. While such current estimate of appraised values may serve to indicate the rate andextent of growth of taxable values within the District, it cannot be used for establishing a tax rate within the District untilsuch time as the Appraisal District chooses to formally include such values on its appraisal roll.

The Property Tax Code provides for a temporary exemption from ad valorem taxation of a portion of the appraised valueof certain property that is at least 15% damaged by a disaster and located within an area declared to be a disaster areaby the governor of the State of Texas. This temporary exemption is automatic if the disaster is declared prior to a taxingunit, such as the District, adopting its tax rate for the tax year. A taxing unit, such as the District, may authorize theexemption at its discretion if the disaster is declared after the taxing unit has adopted its tax rate for the tax year. Theamount of the exemption is based on the percentage of damage and is prorated based on the date of the disaster. Uponreceipt of an application submitted within the eligible timeframe by a person who qualifies for a temporary exemptionunder the Property Tax Code, the Appraisal District is required to complete a damage assessment and assign a damageassessment rating to determine the amount of the exemption. The temporary exemption amounts established in theProperty Tax Code range from 15% for property less than 30% damaged to 100% for property that is a total loss. Anysuch temporary exemption granted for disaster-damaged property expires on January 1 of the first year in which theproperty is reappraised.

District and Taxpayer Remedies

Under certain circumstances, taxpayers and taxing units, including the District, may appeal orders of the AppraisalReview Board by filing a timely petition for review in State district court. In such event, the property value in questionmay be determined by the court, or by a jury, if requested by any party. Additionally, taxing units may bring suit againstthe Appraisal District to compel compliance with the Property Tax Code. The Property Tax Code establishes a procedurefor notice to property owners of reappraisals reflecting increased property values, appraisals that are higher thanrenditions and appraisals of property not previously on an appraisal roll.

Rollback of Operation and Maintenance Tax Rate

During the 86th Regular Legislative Session, Senate Bill 2 ("SB 2") was passed and signed by the Governor, with aneffective date of January 1, 2020, and the provisions described herein are effective beginning with the 2020 tax year.See "SELECTED FINANCIAL INFORMATION" for a description of the District's current total tax rate. Debt serviceand contract tax rates cannot be reduced by a rollback election held within any of the districts described below.

SB 2 classifies districts differently based on the current operation and maintenance tax rate or on the percentage of build-out that the District has completed. Districts that have adopted an operation and maintenance tax rate for the current yearthat is 2.5 cents or less per $100 of taxable value are classified as "Special Taxing Units." Districts that have financed,completed, and issued bonds to pay for all improvements and facilities necessary to serve at least 95% of the projectedbuild-out of the district are classified as "Developed Districts." Districts that do not meet either of the classificationspreviously discussed can be classified herein as "Developing Districts." The impact each classification has on the abilityof a district to increase its maintenance and operations tax rate pursuant to SB 2 is described for each classificationbelow.

Special Taxing Units

Special Taxing Units that adopt a total tax rate that would impose more than1.08 times the amount of the total taximposed by such district in the preceding tax year on a residence homestead appraised at the average appraised valueof a residence homestead, subject to certain homestead exemptions, are required to hold an election within the districtto determine whether to approve the adopted total tax rate. If the adopted total tax rate is not approved at the election,the total tax rate for a Special Taxing Unit is the current year's debt service and contract tax rate plus 1.08 times theprevious year's operation and maintenance tax rate.

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Developed Districts

Developed Districts that adopt a total tax rate that would impose more than1.035 times the amount of the total taximposed by the district in the preceding tax year on a residence homestead appraised at the average appraised value ofa residence homestead, subject to certain homestead exemptions for the preceding tax year, plus any unused incrementrates, as calculated and described in Section 26.013 of the Tax Code, are required to hold an election within the districtto determine whether to approve the adopted total tax rate. If the adopted total tax rate is not approved at the election,the total tax rate for a Developed District is the current year's debt service and contract tax rate plus 1.035 times theprevious year's operation and maintenance tax rate plus any unused increment rates. In addition, if any part of aDeveloped District lies within an area declared for disaster by the Governor of Texas or President of the United States,alternative procedures and rate limitations may apply for a temporary period. If a district qualifies as both a SpecialTaxing Unit and a Developed District, the district will be subject to the operation and maintenance tax thresholdapplicable to Special Taxing Units.

Developing Districts

Districts that do not meet the classification of a Special Taxing Unit or a Developed District can be classified asDeveloping Districts. The qualified voters of these districts, upon the Developing District's adoption of a total tax ratethat would impose more than 1.08 times the amount of the total tax rate imposed by such district in the preceding taxyear on a residence homestead appraised at the average appraised value of a residence homestead, subject to certainhomestead exemptions, are authorized to petition for an election to reduce the operation and maintenance tax rate. If anelection is called and passes, the total tax rate for Developing Districts is the current year's debt service and contract taxrate plus 1.08 times the previous year's operation and maintenance tax rate.

The District

A determination as to a district’s status as a Special Taxing Unit, Developed District or Developing District will be madeby the Board of Directors on an annual basis, beginning with the 2020 tax rate. The District cannot give any assurancesas to what its classification will be at any point in time or whether the District's future tax rates will result in a total taxrate that will reclassify the District into a new classification and new election calculation.

Levy and Collection of Taxes

The District is responsible for the levy and collection of its taxes unless it elects to transfer such functions to anothergovernmental entity. The rate of taxation is set by the Board of Directors, after the legally required notice has been givento owners of property within the District, based upon: a) the valuation of property within the District as of the precedingJanuary 1, and b) the amount required to be raised for debt service, maintenance purposes, and authorized contractualobligations. Taxes are due October 1, or when billed, whichever comes later, and become delinquent if not paid beforeFebruary 1 of the year following the year in which imposed. A delinquent tax incurs a penalty of six percent (6%) ofthe amount of the tax for the first calendar month it is delinquent, plus one percent (1%) for each additional month orportion of a month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. If the tax is notpaid by July 1 of the year in which it becomes delinquent, the tax incurs a total penalty of twelve percent (12%)regardless of the number of months the tax has been delinquent and incurs an additional penalty for collection costs ofan amount established by the District and a delinquent tax attorney. A delinquent tax on personal property incurs anadditional penalty, in an amount established by the District and a delinquent tax attorney, 60 days after the date the taxesbecome delinquent. The delinquent tax accrues interest at a rate of one percent (1%) for each month or portion of amonth it remains unpaid. The Property Tax Code makes provisions for the split payment of taxes, discounts for earlypayment and the postponement of the delinquency date of taxes under certain circumstances which, at the option of theDistrict, which may be rejected by taxing units. The District's tax collector is required to enter into an installmentpayment agreement with any person who is delinquent on the payment of tax on a residence homestead for payment oftax, penalties and interest, if the person requests an installment agreement and has not entered into an installmentagreement with the collector in the preceding 24 months. The installment agreement must provide for payments to bemade in monthly installments and must extend for a period of at least 12 months and no more than 36 months. Inaddition, taxing entities are required by the Property Tax Code to accept four equal installment payments without penalty

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and interest for taxpayers whose damaged property is in a declared disaster area as long as the taxpayer pays at leastone-fourth of the tax bill before the delinquency date. Additionally, the owner of a residential homestead property whois (i) sixty-five (65) years of age or older, (ii) disabled, or (iii) a disabled veteran, is entitled by law to pay current taxeson a residential homestead in installments without penalty or to defer the payment of taxes during the time of ownership. In the instance of tax deferral, a tax lien remains on the property and interest continue to accrue during the period ofdeferral.

Additional Penalties

The District has contracted with a delinquent tax attorney to collect certain delinquent taxes. In connection with thatcontract, the District can establish an additional penalty of twenty percent (20%) of the tax to defray the costs ofcollection. This 20% penalty applies to taxes that either: (1) become delinquent on or after February 1 of a year, but notlater than May 1 of that year, and that remain delinquent on April 1 (for personal property) and July 1 (for real property)of the year in which they become delinquent or (2) become delinquent on or after June 1, pursuant to the Texas TaxCode.

District's Rights in the Event of Tax Delinquencies

Taxes levied by the District are a personal obligation of the owner of the property as of January 1 of the year in whichthe tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penaltiesand interest ultimately imposed for the year on the property. The lien exists in favor of each taxing unit, including theDistrict, having the power to tax the property. The District's tax lien is on a parity with the tax liens of other such taxingunits (see “TAX DATA - Estimated Overlapping Taxes”). A tax lien on real property takes priority over the claims ofmost creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lienexisted before the attachment of the tax lien; however, whether a lien of United States is on a parity with or takes priorityover a tax lien of the District is determined by applicable federal law. Personal property, under certain circumstances,is subject to seizure and sale for the payment of delinquent taxes, penalty and interest.

At any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing paymentof the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, theDistrict must join other taxing units that have claims for delinquent taxes against all or part of the same property.Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, by the effectsof market conditions on the foreclosure sale price, by taxpayer redemption rights (a taxpayer may redeem property withinsix (6) months for commercial property and two (2) years after the purchaser’s deed issued at the foreclosure sale is filedon the County records) or by bankruptcy proceedings which restrict the collection of taxpayer debts.

THE SYSTEM

Regulation

According to the District's Engineer, the System has been designed in conformance with accepted engineering practicesand the requirements of certain governmental agencies having regulatory or supervisory jurisdiction over the constructionand operation of such facilities, including, among others, the TCEQ, the City of Houston, Harris County, and the HarrisCounty Flood Control District.

Operation of the System is subject to regulation by, among others, the United States Environmental Protection Agencyand the TCEQ. The total number of equivalent single-family connections (“ESFCs”) estimated at this time for theDistrict upon the full development of the approximately 1,230.1986 acres currently contained within the District is 5,182with a total estimated population of 18,200 people. The following descriptions are based upon information supplied bythe District's Engineer.

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Description

The System presently serves Timber Forest, Sections 1 and 4 through 7, Clayton's Corner, Sections 1 through 4,Woodland Pines, Sections 1 through 10, Laurel Place, Sections 1 through 3, Atascocita Trace, Sections 1 through 6,Blackstone Creek, Sections 1 through 4 and Villages at Tour 18, Sections 1 and 2. The District acquired the undergroundwater distribution, wastewater collection and storm drainage facilities to serve Timber Forest, Sections 1 and 4 through7, Clayton’s Corner, Sections 1 through 4, Laurel Place, Sections 1 through 3, Woodland Pines, Sections 1 through 10,Atascocita Trace, Sections 1 through 6, Blackstone Creek, Sections 1 through 4, Villages at Tour 18, Sections 1 and 2,Phases 1 and 1A, and other facilities with the proceeds of the sale of the Prior Bonds. The District expects to financethe acquisition or construction of additional components of the System with portions of the proceeds of the sale of bonds,if any, including reimbursement to some of its Developers, to be issued by the District in the future, including theDistrict’s approximately $5,455,000 Unlimited Tax Bonds, Series 2020A that it expects to issue in approximately thefourth quarter of 2020. See “THE BONDS - Issuance of Additional Debt,” “THE SYSTEM” and “INVESTMENTCONSIDERATIONS - Future Debt.”

Wastewater Treatment

The District is provided wastewater treatment capacity by an existing plant with 200,000 gallons-per-day ("g.p.d.") ofcapacity and an existing 1,200,000 g.p.d. permanent wastewater treatment plant that the District financed with portionsof the proceeds of the sale of the Prior Bonds. According to the District's Engineer, the total of such capacity availableto the District is adequate to serve 5,000 ESFCs in the District. On December 13, 2012, the District approved andexecuted a Sanitary Sewage Treatment and Disposal Agreement with Harris County, Texas. The Commissioners Courtof Harris County, Texas, approved and executed said agreement on January 8, 2013. Pursuant to the terms of saidagreement, the District will treat up to 238,000 g.p.d. (850 ESFC) of wastewater from Harris County facilities locatedoutside the District. Pursuant to the terms of a first amendment (approved and executed December 5, 2017), the Districtwill treat an additional 107,000 g.p.d. (382 ESFC). Accordingly, 3,768 ESFC will remain available in the existing plantsto serve land within the District until an expansion is constructed. The design of a 600,000 g.p.d. wastewater treatmentplant expansion is underway. When the construction of this expansion is completed, this treatment plant will have acapacity of 1,800,000 g.p.d., and the 200,000 g.p.d. wastewater treatment plant will be decommissioned and removed,providing for a net increase of 400,000 g.p.d. The expanded 1,800,000 g.p.d. wastewater treatment plant will be capableof serving 6,429 ESFCs. With the obligation to provide 1,232 ESFCs capacity of Harris County, there will be 5,196ESFCs remaining to serve property within the District. At ultimate build-out, there are projected to be 4,873 in-DistrictESFCs. Construction of the expansion to the wastewater treatment plant is projected to commence in October of 2020and be completed in January of 2022.

Water Supply

The District's water supply system includes a 1,000 gallons-per-minute ("g.p.m.") water well, 1,026,000 gallons ofground storage tank capacity, 60,000 gallons of pressure tank capacity, 11,025 g.p.m. of booster pump capacity, andappurtenant facilities, all of which facilities were financed by the District with portions of the proceeds of the sale of thePrior Bonds. The District also financed with portions of the proceeds of the Prior Bonds a water re-pressurization plant,and a surface water line and related facilities that the District has constructed pursuant to a contract between the Districtand the City of Houston to acquire surface water. The District is receiving surface water at the repressurization plant. According to the District's Engineer, the water supply, storage and re-pressurization facilities owned by the District plusthe surface water that the District is entitled to take pursuant to the surface water contract with the City of Houston,provide the District with water supply adequate to serve 5,000 ESFCs in the District.

Outfall Drainage Improvements

Improvements have been made to Williams Gully and certain Harris County Flood Control District channels toaccommodate outfall drainage from a portion of the District. The District financed the cost of construction of HarrisCounty Flood Control District Drainage Channels P130-02-00 and P130-02-04, improvements to Williams Gully anddetention facilities to serve Clayton's Corner, Section 1 with portions of the proceeds of the sale of the Prior Bonds. Future improvements to Williams Gully and/or detention facilities may be required to accomplish future developmentof the District.

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100-Year Flood Plain

The Federal Emergency Management Agency Flood Hazard Boundary Map currently in effect, which covers the landlocated in the District, indicates that no portion of the District is located in the 100-year flood plain of any watercourse.

"Flood Insurance Rate Map" or "FIRM" means an official map of a community on which the Federal EmergencyManagement Agency (FEMA) has delineated the appropriate areas of flood hazards. The 1% chance of probableinundation, also known as the 100-year flood plain, is depicted on these maps. The "100 year flood plain" (or 1% chanceof probable inundation) as shown on the FIRM is the estimated geographical area that would be flooded by a rain stormof such intensity to statistically have a one percent chance of occurring in any given year. Generally speaking, homesmust be built above the 100 year flood plain in order to meet local regulatory requirements and to be eligible for federalflood insurance. An engineering or regulatory determination that an area is above the 100 year flood plain is not anassurance that homes built in such area will not be flooded, and a number of neighborhoods in the greater Houston areathat are above the 100-year flood plain have flooded multiple times in the last several years.

The National Weather Service recently completed a rainfall study known as NOAA Atlas 14, Volume 11Precipitation-Frequency Atlas estimates for the United States ("Atlas 14"). Floodplain boundaries within the District maybe redrawn based on the Atlas 14 study, which is based on a higher statistical rainfall amount, resulting in interimfloodplain regulations applying to a larger number of properties and consequently leaving less developable propertywithin the District. Such regulations could additionally result in higher insurance rates, increased development fees, andstricter building codes for any property located within the expanded boundaries of the floodplain.

Subsidence and Conversion to Surface Water Supply

The District is within the boundaries of the Harris-Galveston Subsidence District (the “Subsidence District”) whichregulates groundwater withdrawal. The District's authority to pump groundwater from its well is subject to annualpermits issued by the Subsidence District. On April 14, 1999, the Subsidence District adopted a District Regulatory Plan(the “1999 Plan”) to reduce groundwater withdrawal through conversion to surface water in areas within the SubsidenceDistrict's jurisdiction. On January 9, 2013, the Subsidence District adopted a revised Regulatory Plan (the “2013 Plan”). Under the 1999 Plan, the District must have filed with the Subsidence District by January, 2003, a groundwater reductionplan (“GRP”), either individually or as part of a group of entities and was required to begin construction of surface waterconversion infrastructure by January 2005, or pay a disincentive fee for any groundwater withdrawn in excess of 20%of the total water demand. Under the 2013 Plan, additional disincentive fees will be imposed if the groundwaterwithdrawal exceeds 40% of the total water demand beginning January 2025, and exceeds 20% of the total water demandbeginning January 2035. In order to meet these requirements, the District has entered into a Water Supply andGroundwater Reduction Plan Wholesale Agreement effective as of July 18, 2003, with the City of Houston. The Districthas financed certain facilities pursuant to the contract with the City of Houston with portions of the proceeds of the saleof the Prior Bonds as is described above under the caption “Water Supply.”

LEGAL MATTERS

Legal Opinions

Delivery of the Bonds will be accompanied by the unqualified approving legal opinion of (a) the Attorney General ofTexas as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, to the effect thatthe Bonds are valid and legally binding obligations of the District under the Constitution and laws of the State of Texas,and all taxable property within the District is subject to the levy of ad valorem taxes to pay the same, without legallimitation as to rate or amount, based upon examination of a transcript of certified proceedings held incident to theissuance and authorization of the Bonds, and (b) the approving legal opinion of Bond Counsel for the District, to a likeeffect and to the effect that, under existing law, interest on the Bonds is excludable from gross income for federal taxpurposes, and interest on the Bonds is not subject to the alternative minimum tax on individuals. Such opinions expressno opinion with respect to the sufficiency of the security for or the marketability of the Bonds.

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Bond Counsel has reviewed the information appearing in this Official Statement under “THE BONDS,” except for theinformation under the subheading “Book-Entry-Only System,” “PLAN OF FINANCING - Escrow Agreement” and -“Defeasance of the Refunded Bonds,” “THE DISTRICT - Attorney,” “TAX PROCEDURES,” “THE SYSTEM -Subsidence and Conversion to Surface Water Supply,” “LEGAL MATTERS - Legal Opinions,” “TAX MATTERS” and“CONTINUING DISCLOSURE OF INFORMATION” solely to determine whether such information, insofar as itrelates to matters of law, is true and correct and whether such information fairly summarizes matters of law and theprovisions of the documents referred to therein. Bond Counsel has not, however, independently verified any of thefactual information contained in this Official Statement nor has it conducted an investigation of the affairs of the Districtfor the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to relyupon Bond Counsel's limited participation as an assumption of responsibility for or an expression of opinion of any kindwith regard to the accuracy or completeness of any information contained herein, other than the matters discussedimmediately above.

Allen Boone Humphries Robinson LLP also serves as general counsel to the District on matters other than the issuanceof bonds. The legal fees paid to Bond Counsel for services rendered in connection with the issuance of the Bonds arebased on a percentage of the bonds actually issued, sold, and delivered and, therefore, such fees are contingent upon thesale and delivery of the Bonds. Certain legal matters will be passed upon for the Underwriters by their counsel, McCall,Parkhurst & Horton L.L.P., Houston, Texas. McCall, Parkhurst & Horton L.L.P. has served as Disclosure Counsel ofthe District on certain new money financings.

No-Litigation Certificate

The District will furnish the Underwriters a certificate, executed by the President and Secretary of the Board, and datedas of the date of delivery of the Bonds, that, to their knowledge, no litigation is pending or threatened affecting thevalidity of the Bonds, or the levy and/or collection of taxes for the payment thereof, or the organization or boundariesof the District, or the title of the officers thereof to their respective offices.

NO MATERIAL ADVERSE CHANGE

The obligations of the Underwriters to take up and pay for the Bonds, and of the District to deliver the Bonds, are subjectto the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no materialadverse change in the financial condition of the District subsequent to the date of sale from that set forth in thePreliminary Official Statement, as it may have been finalized, supplemented or amended through the date of sale.

TAX MATTERS

In the opinion of Allen Boone Humphries Robinson LLP, Bond Counsel, under existing law, interest on the Bonds isexcludable from gross income for federal income tax purposes and interest on the Bonds is not subject to the alternativeminimum tax on individuals.

The Internal Revenue Code of 1986, as amended (the "Code") imposes a number of requirements that must be satisfiedfor interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income taxpurposes. These requirements include limitations on the use of proceeds and the source of repayment, limitations on theinvestment of proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of proceedsbe paid periodically to the United States and a requirement that the issuer file an information report with the InternalRevenue Service (the "Service"). The District has covenanted in the Bond Resolution that it will comply with theserequirements.

Bond Counsel's opinion will assume continuing compliance with the covenants of the Bond Resolution pertaining tothose sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income taxpurposes and, in addition, will rely on representations by the District, the District's Financial Advisor and theUnderwriters with respect to matters solely within the knowledge of the District, the District's Financial Advisor andthe Underwriters, respectively, which Bond Counsel has not independently verified. The District will further rely on

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the report of Robert Thomas, CPA, LLC, regarding the mathematical accuracy of certain computations. If the Districtshould fail to comply with the covenants in the Bond Resolution or if the foregoing representations or report should bedetermined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of theBonds, regardless of the date on which the event causing such taxability occurs.

Under the Code, taxpayers are required to report on their returns the amount of tax exempt interest, such as interest onthe Bonds, received or accrued during the year. Payments of interest on tax-exempt obligations such as the Bonds arein many cases required to be reported to the Service. Additionally, backup withholding may apply to any such paymentsto any owner who is not an "exempt recipient" and who fails to provide certain identifying information. Individualsgenerally are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients.

Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resultingfrom the ownership of, receipt of interest on, or disposition of, the Bonds.

Prospective purchasers of the Bonds should be aware that the ownership of tax exempt obligations may result incollateral federal income tax consequences to financial institutions, life insurance and property and casualty insurancecompanies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security orRailroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase orcarry tax exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individualsotherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the UnitedStates may be subject to the "branch profits tax" on their effectively-connected earnings and profits, including tax exemptinterest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisorsas to the applicability of these consequences.

Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on BondCounsel's knowledge of facts as of the date hereof. Bond Counsel assumes no duty to update or supplement its opinionsto reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect any changes inany law that may thereafter occur or become effective. Moreover, Bond Counsel's opinions are not a guarantee of resultand are not binding on the Service; rather, such opinions represent Bond Counsel's legal judgment based upon its reviewof existing law and in reliance upon the representations and covenants referenced above that it deems relevant to suchopinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether intereston state or local obligations is includable in gross income for federal income tax purposes. No assurance can be givenwhether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with itscurrent published procedures the Service is likely to treat the District as the taxpayer and the owners of the Bonds maynot have a right to participate in such audit. Public awareness of any future audit of the Bonds could adversely affectthe value and liquidity of the Bonds during the pendency of the audit regardless of the ultimate outcome of the audit.

Qualified Tax-Exempt Obligations

The Code requires a pro rata reduction in the interest expense deduction of a financial institution to reflect such financialinstitution's investment in tax-exempt obligations acquired after August 7, 1986. An exception to the foregoing provisionis provided in the Code for "qualified tax-exempt obligations," which include tax-exempt obligations, such as the Bonds,(a) designated by the issuer as "qualified tax-exempt obligations" and (b) issued by or on behalf of a political subdivisionfor which the aggregate amount of tax-exempt obligations (not including private activity bonds other than qualified501(c)(3) bonds) to be issued during the calendar year is not expected to exceed $10,000,000.

The District will designate the Bonds as "qualified tax-exempt obligations" and has represented that the aggregateamount of tax-exempt bonds (including the Bonds) issued by the District and entities aggregated with the District underthe Code during calendar year 2020 is not expected to exceed $10,000,000 and that the Issuer and entities aggregatedwith the Issuer under the Code have not designated more than $10,000,000 in "qualified tax-exempt obligations"(including the Bonds) during calendar year 2020.

Notwithstanding these exceptions, financial institutions acquiring the Bonds will be subject to a 20% disallowance ofallocable interest expense.

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VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATION

The arithmetical accuracy of certain computations included in the schedules provided on behalf of the District relatingto (a) computation of the adequacy of the amounts deposited with the Escrow Agent and certain available funds (if any)to pay, when due, the principal or redemption price of and interest on the Refunded Bonds, (b) the computation of theyield on the Bonds and the Escrowed Securities (c) the mathematical computations related to certain requirements of Cityof Houston Ordinance No. 97-416 was verified by Robert Thomas, CPA, LLP, Certified Public Accountants. Thecomputations were independently verified by Robert Thomas, CPA, LLP based solely upon assumptions and informationsupplied on behalf of the District and the District.

Robert Thomas CPA, LLC relied on the accuracy, completeness and reliability of all information provide to it by, andon all decisions and approvals of, the District. In addition, Robert Thomas CPA, LLC has relied on any informationprovided to it by the District’s retained advisors, consultants or legal counsel. Robert Thomas CPA, LLC was notengaged to perform audit or attest services under AICPA auditing or attestation standards or to provide any form of attestreport or opinion under such standards in conjunction with this engagement.

CONTINUING DISCLOSURE OF INFORMATION

In the Bond Resolution, the District has made the following agreement for the benefit of the holders and BeneficialOwners of the Bonds. The District is required to observe the agreement for so long as it remains obligated to advancefunds to pay the Bonds. Under the agreement, the District will be obligated to provide certain updated financialinformation and operating data annually, and timely notice of certain specified events, to the Municipal SecuritiesRulemaking Board (the “MSRB”) or any successor to its functions as a repository through its Electronic MunicipalMarket Access (“EMMA”) system.

Annual Reports

The District will provide certain updated financial information and operating data annually to the MSRB. Theinformation to be updated with respect to the District includes all quantitative financial information and operating dataof the general type included in this Official Statement under the headings “DISTRICT DEBT,” “TAX DATA,” and in“APPENDIX B.” The District will update and provide this information within six months after the end of each of itsfiscal years ending in or after 2020. The District will provide the updated information to the Municipal SecuritiesRulemaking Board (the “MSRB”) or any successor to its functions as a repository through its Electronic MunicipalMarket Access (“EMMA”) system.

The District may provide updated information in full text or may incorporate by reference certain other publicly availabledocuments, as permitted by Rule 15c2-12 of the United States Securities and Exchange Commission (the “SEC”) (the“Rule”). The updated information will include audited financial statements if it commissions an audit and the audit iscompleted by the required time. If the audit of such financial statements is not complete within such period, then theDistrict shall provide unaudited financial statements for the applicable fiscal year to the MSRB within such six-monthperiod, and audited financial statements when the audit report on such statements becomes available. Any such financialstatements will be prepared in accordance with the accounting principles described in the Bond Resolution or such otheraccounting principles as the District may be required to employ from time to time pursuant to state law or regulation.

The District's fiscal year end is currently August 31. Accordingly, it must provide updated information by February 28in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRBof the change.

Event Notices

The District will provide timely notices of certain specified events to the MSRB, but in no event will such notices beprovided to the MSRB in excess of ten business days after the occurrence of an event. The District will provide noticeof any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2)non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties;

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(4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidityproviders, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposedor final determination of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices ordeterminations with respect to the tax status of the Bonds, or other events affecting the tax status of the Bonds; (7)modifications to rights of Beneficial Owners of the Bonds, if material; (8) bond calls, if material, and tender offers; (9)defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) ratingchanges; (12) bankruptcy, insolvency, receivership or similar event of the District or other obligated person; (13)consummation of a merger, consolidation, or acquisition involving the District or other obligated person or the sale ofall or substantially all of the assets of the District or other obligated person other than in the ordinary course of business,the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relatingto any such actions, other than pursuant to its terms, if material; (14) appointment of a successor or additional trusteeor the change of name of a trustee, if material; (15) incurrence of a financial obligation of the District or other obligatedperson, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of afinancial obligation of the District or other obligated person, any of which affect Beneficial Owners of the Bonds, ifmaterial; and (16) default, event of acceleration, termination event, modification of terms, or other similar events underthe terms of a financial obligation of the District or other obligated person, any of which reflect financial difficulties. The terms "obligated person" and "financial obligation" when used in this paragraph shall have the meanings ascribedto them under SEC Rule 15c2-12 (the "Rule"). The term “material” when used in this paragraph shall have the meaningascribed to it under federal securities laws. Neither the Bonds nor the Bond Resolution makes any provision for debtservice reserves or liquidity enhancement. In addition, the District will provide timely notice of any failure by theDistrict to provide financial information, operating data, or financial statements in accordance with its agreementdescribed above under “Annual Reports.”

Availability of Information

The District has agreed to provide the foregoing information only to the MSRB. Investors will be able to access, withoutcharge from the MSRB, continuing disclosure information filed with the MSRB at www.emma.msrb.org.

Limitations and Amendments

The District has agreed to update information and to provide notices of certain specified events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation ofits financial results of operations, condition, or prospects or agreed to update any information that is provided, exceptas described above. The District makes no representation or warranty concerning such information or concerning itsusefulness to a decision to invest in or sell Bonds at any future date. The District disclaims any contractual or tortliability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from anystatement made pursuant to its agreement, although holders or Beneficial Owners of Bonds may seek a writ of mandamusto compel the District to comply with its agreement.

The District may amend its continuing disclosure agreement from time to time to adapt to changed circumstances thatarise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type ofoperations of the District, if but only if the agreement, as amended, would have permitted the Underwriters to purchaseor sell Bonds in the offering made hereby in compliance with the Rule, taking into account any amendments orinterpretations of the Rule to the date of such amendment, as well as such changed circumstances, and either the holdersof a majority in aggregate principal amount of the Remaining Outstanding Bonds consent to the amendment or anyperson unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment willnot materially impair the interests of the holders and Beneficial Owners of the Bonds. The District may amend or repealthe agreement in the Bond Resolution if the SEC amends or repeals the applicable provisions of the Rule or a court offinal jurisdiction determines that such provisions are invalid or unenforceable, but only to the extent that its right to doso would not prevent the Underwriters from lawfully purchasing the Bonds in the initial offering. If the District soamends the agreement, it has agreed to include with any financial information or operating data next provided inaccordance with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasonsfor the amendment and of the impact of any change in the type of financial information and operating data so provided.

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Compliance with Prior Undertakings

During the last five years, the District has complied in all material respects with its continuing disclosure agreementsmade in accordance with SEC Rule 15c2-12.

OFFICIAL STATEMENT

General

The information contained in this Official Statement has been obtained primarily from the District's records, the TaxAssessor/Collector, the Harris County Appraisal District, the Engineer, and other sources believed to be reliable;however, no representation is made as to the accuracy or completeness of the information obtained from sources otherthan the District. The summaries of the statutes, resolutions, orders and engineering and other related reports set forthherein are included subject to all of the provisions of such documents. These summaries do not purport to be completestatements of such provisions and reference is made to such documents for further information.

The financial statements of the District as of August 31, 2019, and for the year then ended, included in this offeringdocument, have been audited by BKD, LLP, independent auditors, as stated in their report appearing herein. See“APPENDIX B.”

Experts

The information contained in this Official Statement relating to engineering, to the description of the System generallyand, in particular, the engineering information included in the sections captioned “THE DISTRICT,” “DEVELOPMENTAND HOME CONSTRUCTION,” and “THE SYSTEM,” has been provided by BGE, Inc., Houston, Texas. Suchinformation has been included herein in reliance upon the authority of said firm as experts in the field of civilengineering.

The information contained in this Official Statement relating to assessed valuations of property generally and, inparticular, that information concerning valuations contained in the sections captioned “DISTRICT DEBT” and “TAXDATA” has been provided by the Harris County Appraisal District and Assessments of the Southwest. The District hasincluded certain information herein in reliance upon Assessment of the Southwest’s authority as an expert in the fieldof tax assessing and real property appraisal. The District has included certain information herein in reliance upon theAppraisal District's authority as an expert in the field of tax assessing and real property appraisal.

Certification as to Official Statement

The District, acting by and through its Board of Directors in its official capacity and in reliance upon the experts listedabove, hereby certifies, as of the date hereof, that to the best of its knowledge and belief, the information, statements anddescriptions pertaining to the District and its affairs herein contain no untrue statements of a material fact and do not omitto state any material fact necessary to make the statements herein, in light of the circumstances under which they weremade, not misleading. The information, descriptions and statements concerning entities other than the District, includingparticularly other governmental entities, have been obtained from sources believed to be reliable, but the District hasmade no independent investigation or verification of such matters and makes no representation as to the accuracy orcompleteness thereof.

Updating of Official Statement

If, subsequent to the date of the Official Statement, to and including the date the Underwriters are no longer requiredto provide an Official Statement to customers who request same pursuant to SEC Rule 15c2-12, the District learns, oris notified by the Underwriters, of any adverse event which causes the Official Statement to be materially misleading,and unless the Underwriters elect to terminate their obligation to purchase the Bonds, the District will promptly prepareand supply to the Underwriters an appropriate amendment or supplement to the Official Statement satisfactory to theUnderwriters; provided, however, that the obligation of the District to so amend or supplement the Official Statement

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will terminate upon the earlier of (i) 90 days after the “end of the underwriting period” as defined in SEC Rule 15c2-12or (ii) the date the Official Statement is filed with the MSRB, but in no case less than 25 days after the “end of theunderwriting period.”

This Official Statement was approved by the Board of Directors of Harris County Municipal Utility District No. 278 asof the date shown on the first page hereof.

/s/ Eugene NewsomPresident, Board of DirectorsHarris County Municipal Utility District No. 278

ATTEST:

/s/ Donald E. MatlockSecretary, Board of DirectorsHarris County Municipal Utility District No. 278

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APPENDIX A

LOCATION MAP

APPENDIX B

HARRIS COUNTY MUNICIPAL UTILITY NO. 278

HARRIS COUNTY, TEXAS

INDEPENDENT AUDITOR’S REPORT AND FINANCIAL STATEMENTS

AUGUST 31, 2019

Harris County Municipal Utility District No. 278,of Harris County, Texas

Independent Auditor's Report and Financial StatementsAugust 31, 2019

Harris County Municipal Utility District No. 278, of Harris County, Texas

August 31, 2019

Contents

Independent Auditor's Report ............................................................................................ 1

Management's Discussion and Analysis ........................................................................... 3

Basic Financial Statements Statement of Net Position and Governmental Funds Balance Sheet ............................................. 10

Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances .......................................................................... 12

Notes to Financial Statements ........................................................................................................ 14

Required Supplementary Information Budgetary Comparison Schedule – General Fund ......................................................................... 29

Budgetary Comparison Schedule –Special Revenue Fund ............................................................ 30

Notes to Required Supplementary Information ............................................................................. 31

Other Information Other Schedules Included Within This Report .............................................................................. 32

Schedule of Services and Rates ..................................................................................................... 33

Schedule of General Fund Expenditures ........................................................................................ 34

Schedule of Temporary Investments ............................................................................................. 35

Analysis of Taxes Levied and Receivable ..................................................................................... 37

Schedule of Long-term Debt Service Requirements by Years ...................................................... 39

Changes in Long-term Bonded Debt ............................................................................................. 47

Comparative Schedule of Revenues and Expenditures – General Fund and Debt Service Fund – Five Years ....................................................................................... 48

Board Members, Key Personnel and Consultants .......................................................................... 50

Independent Auditor's Report

Board of DirectorsHarris County Municipal Utility District No. 278,

of Harris County, Texas

We have audited the accompanying financial statements of the governmental activities and each major fund of Harris County Municipal Utility District No. 278, of Harris County, Texas (the District), as of and for the year ended August 31, 2019, and the related notes to the financial statements, which collectively comprise the District's basic financial statements listed in the table of contents.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity'sinternal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Board of Directors Harris County Municipal Utility District No. 278, of Harris County, Texas Page 2

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of August 31, 2019, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and budgetary comparison schedules listed in the table of contents be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The other information as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Houston, Texas January 13, 2020


Management's Discussion and Analysis August 31, 2019

3

Overview of the Financial Statements

This discussion and analysis is intended to serve as an introduction to the District's basic financial statements. The District's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements and 3) notes to financial statements. This report also contains supplementary information required by the Governmental Accounting Standards Board and other information required by the District's state oversight agency, the Texas Commission on Environmental Quality (the Commission).

In accordance with required reporting standards, the District reports its financial activities as a special-purpose government. Special-purpose governments are governmental entities which engage in a single governmental program, such as the provision of water, sanitary sewer and drainage services. Other activities, such as the provision of recreation facilities and solid waste collection, are minor activities and are not budgeted or accounted for as separate programs. The financial statements of special-purpose governments combine two types of financial statements into one statement. These two types of financial statements are the government-wide financial statements and the fund financial statements. The fund financial statements are presented on the left side of the statements, a column for adjustments is to the right of the fund financial statements and the government-wide financial statements are presented to the right side of the adjustments column. The following sections describe the measurement focus of the two types of statements and the significant differences in the information they provide.

Government-wide Financial Statements

The focus of government-wide financial statements is on the overall financial position and activities of the District. The District's government-wide financial statements include the statement of net position and statement of activities, which are prepared using accounting principles that are similar to commercial enterprises. The purpose of the statement of net position is to attempt to report all of the assets, liabilities, and deferred inflows and outflows of resources of the District. The District reports all of its assets when it acquires or begins to maintain the assets and reports all of its liabilities when they are incurred.

The difference between the District's total assets, liabilities, and deferred inflows and outflows of resources is labeled as net position and this difference is similar to the total stockholders' equity presented by a commercial enterprise.

The purpose of the statement of activities is to present the revenues and expenses of the District. Again, the items presented on the statement of activities are measured in a manner similar to the approach used by a commercial enterprise in that revenues are recognized when earned or established criteria are satisfied and expenses are reported when incurred by the District. All changes in net position are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues are reported even when they may not be collected for several months or years after the end of the accounting period and expenses are recorded even though they may not have used cash during the current year.


Management's Discussion and Analysis (Continued) August 31, 2019

4

Although the statement of activities looks different from a commercial enterprise's statement of income, the financial statement is different only in format, not substance. Whereas the bottom line in a commercial enterprise is its net income, the District reports an amount described as change in net position, essentially the same thing.

Fund Financial Statements

Unlike government-wide financial statements, the focus of fund financial statements is directed to specific activities of the District rather than the District as a whole. Except for the general fund, a specific fund is established to satisfy managerial control over resources or to satisfy finance-related legal requirements established by external parties or governmental statutes or regulations.

Governmental Funds

Governmental-fund financial statements consist of a balance sheet and a statement of revenues, expenditures and changes in fund balances and are prepared on an accounting basis that is significantly different from that used to prepare the government-wide financial statements.

In general, these financial statements have a short-term emphasis and, for the most part, measure and account for cash and other assets that can easily be converted into cash. For example, amounts reported on the balance sheet include items such as cash and receivables collectible within a very short period of time, but do not include capital assets such as land and water, sewer and drainage systems. Fund liabilities include amounts that are to be paid within a very short period after the end of the fiscal year. The difference between a fund's assets, liabilities, and deferred inflows and outflows of resources is labeled the fund balance and generally indicates the amount that can be used to finance the next fiscal year's activities. Likewise, the operating statement for governmental funds reports only those revenues and expenditures that were collected in cash or paid with cash, respectively, during the current period or very shortly after the end of the fiscal year.

Because the focus of the government-wide and fund financial statements is different, there are significant differences between the totals presented in these financial statements. For this reason, there is an analysis in the notes to financial statements that describes the adjustments to fund balances to arrive at net position presented in the governmental activities column on the statement of net position. Also, there is an analysis in the notes to financial statements that reconciles the total change in fund balances for all governmental funds to the change in net position, as reported in the governmental activities column in the statement of activities.

Notes to Financial Statements

The notes to financial statements provide additional information that is essential to a full understanding of the data found in the government-wide and fund financial statements.



5

Financial Analysis of the District as a Whole

The District's overall financial position and activities for the past two years are summarized as follows, based on the information included in the government-wide financial statements.

2019 2018

Current and other assets 12,813,600$ 10,169,765$ Capital assets 36,338,376 38,663,430

Total assets 49,151,976 48,833,195

Deferred outflows of resources 1,330,273 1,405,315

Total assets and deferred outflows of resources 50,482,249$ 50,238,510$

Long-term liabilities 50,889,685$ 53,184,477$ Other liabilities 1,449,245 1,194,241

Total liabilities 52,338,930 54,378,718

Net position:Net investment in capital assets (1,670,174) (3,482,481) Restricted 3,516,923 3,395,992 Unrestricted (3,703,430) (4,053,719)

Total net position (1,856,681)$ (4,140,208)$

Summary of Net Position

The total net position of the District increased by $2,283,527, or about 55 percent. The majority of the increase in net position is related to tax revenues intended to pay principal on the District's bonded indebtedness, which is included in long-term liabilities in the government-wide financial statements. Although the District's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

At August 31, 2019, unrestricted net position was $(3,703,430). This amount was negative because not all expenditures from long-term debt were for the acquisition of capital assets. Within Harris County, the county government assumes the maintenance and other incidents of ownership of most storm sewer facilities constructed by the District. Accordingly, these assets are not recorded in the financial statements of the District.



6

2019 2018Revenues:

Property taxes 4,618,825$ 4,449,913$ Charges for services 3,172,279 3,189,251 Other revenues 1,748,480 1,773,439

Total revenues 9,539,584 9,412,603

Expenses:Services 3,382,980 3,741,078 Conveyance of capital assets 502,226 353,579 Depreciation 1,020,891 1,005,288 Debt service 2,349,960 2,061,691

Total expenses 7,256,057 7,161,636

Change in net position 2,283,527 2,250,967

Net position, beginning of year (4,140,208) (6,391,175)

Net position, end of year (1,856,681)$ (4,140,208)$

Summary of Changes in Net Position

Financial Analysis of the District's Funds

The District's combined fund balances as of the end of the fiscal year ended August 31, 2019, were $11,337,506, an increase of $2,451,517 from the prior year.

The general fund's fund balance increased by $1,865,281, primarily due to property taxes and service revenues exceeding service operations expenditures.

The special revenue fund's fund balance remained the same, as all expenditures were billed to participants.

The debt service fund's fund balance increased by $160,671 because bond principal and interest requirements were less than property tax revenues generated.

The capital projects fund's fund balance increased by $425,565. This net increase was primarily due to proceeds received from the sale of bonds. From the proceeds of the debt, the District repaid its developers for facilities located within the District's boundaries.



7

General Fund Budgetary Highlights

There were several differences between the final budgetary amounts and actual amounts. The major differences between budget and actual were due to investment income revenues being greater than anticipated, as well as purchased services and capital outlay expenditures being less than anticipated. In addition, a transfer from the capital projects fund was not included in the budget. The fund balance as of August 31, 2019, was expected to be $5,711,311 and the actual end-of-year fund balance was $6,794,947.

Capital Assets and Related Debt

Capital Assets

Capital assets held by the District at the end of the current and previous fiscal years are summarized below:

2019 2018

Land and improvements 11,721,064$ 11,395,900$ Construction in progress 98,003 8,715 Water facilities 9,514,170 9,485,591 Wastewater facilities 15,005,139 17,773,224

Total capital assets 36,338,376$ 38,663,430$

Capital Assets (Net of Accumulated Depreciation)

During the current year, additions to capital assets were as follows:

89,288$ 114,470

Water and wastewater facilities to serve Atascocita Trace, Sections 4-6 228,471 Water and wastewater facilities to serve Villages at Tour 18, Section 2 62,494 Water and wastewater facilities to serve Woodland Pines, Sections 9 and 10 269,429 Water and wastewater facilities to serve Blackstone Creek, Sections 2-4 149,210 Water line and sanitary sewer easements for Phase 1 water line facilities 9,540 Land additions, 17.7882-acre detention basins A and B at Villages at Tour 18 315,624

Total additions to capital assets 1,238,526$

16" water line along Atascocita Road and 12" water line along Will Clayton

Construction in progress related to the wastewater treatment plantexpansion to 1.50 MGD



8

Debt

The changes in the debt position of the District during the fiscal year ended August 31, 2019, are summarized as follows:

53,184,477$ Increases in long-term debt 5,965,500 Decreases in long-term debt (8,260,292)

Long-term debt payable, end of year 50,889,685$

Long-term debt payable, beginning of year

At August 31, 2019, the District had $19,165,000 of unlimited tax bonds authorized, but unissued, for the purposes of acquiring, constructing and improving the water, sanitary sewer and drainage systems within the District.

During the fiscal year ended August 31, 2019, the District issued $6,150,000 in new unlimited tax bonds at a net effective interest rate of approximately 3.279 percent to reimburse developers for facilities located within the District's boundaries. The Board of Directors anticipates that a tax rate increase will not be necessary to pay the principal and interest on the new bonds because of the increase in valuation attributed to new construction and an overall increase in the appraised value of taxable property within the District.

The District's bonds carry underlying ratings of "BBB-" from Standard & Poor's and "A3" from Moody's Investors Service. The Series 2015 refunding and 2018 refunding bonds carry a "AA" rating from Standard & Poor's by virtue of bond insurance issued by Municipal Assurance Corporation. The Series 2016 and 2019 bonds carry a "AA" rating from Standard & Poor's by virtue of bond insurance issued by Build America Mutual Assurance Company.

Other Relevant Factors

Relationship to the City of Houston

Under existing Texas law, since the District lies wholly within the extraterritorial jurisdiction of the City of Houston (the City), the District must conform to the City ordinance consenting to the creation of the District. In addition, the District may be annexed by the City without the District's consent, except as set forth below.



9

Effective December 12, 2008, the District entered into a Strategic Partnership Agreement (the Agreement) with the City, which annexed certain portions of the District for "limited purposes," as described therein. Under the terms of the Agreement, the City has agreed it will not annex the District as a whole for full purposes for a period of 30 years from the date of the Agreement, at which time the City has the option to annex the District if it chooses to do so. On December 5, 2017, the Agreement was amended to annex an additional tract of land in the District.


Statement of Net Position and Governmental Funds Balance Sheet August 31, 2019

See Notes to Financial Statements 10

Special Debt Capital StatementGeneral Revenue Service Projects of Net

Fund Fund Fund Fund Total Adjustments PositionAssets

Cash 345,878$ 125,643$ 85,571$ 3,350$ 560,442$ -$ 560,442$ Certificates of deposit 3,460,000 - 2,760,000 - 6,220,000 - 6,220,000 Short-term investments 3,826,873 - 542,388 1,162,301 5,531,562 - 5,531,562 Receivables:

Property taxes 15,530 - 40,181 - 55,711 - 55,711 Service accounts 288,488 - - - 288,488 - 288,488

Accrued penalty and interest - - - - - 20,974 20,974 Accrued interest 45,197 - 14,713 - 59,910 - 59,910 Interfund receivable 106,103 80,282 - - 186,385 (186,385) - Prepaid expenditures 12,625 - - - 12,625 - 12,625 Due from participants - 43,159 - - 43,159 - 43,159 Due from others 15,569 - 5,160 - 20,729 - 20,729 Capital assets (net of accumulated

depreciation):Land and improvements - - - - - 11,721,064 11,721,064 Construction in progress - - - - - 98,003 98,003 Infrastructure - - - - - 24,519,309 24,519,309

Total assets 8,116,263 249,084 3,448,013 1,165,651 12,979,011 36,172,965 49,151,976

Deferred Outflows of Resources

Deferred amount on debt refundings 0 0 0 0 0 1,330,273 1,330,273

Total assets and deferred

outflows of resources 8,116,263$ 249,084$ 3,448,013$ 1,165,651$ 12,979,011$ 37,503,238$ 50,482,249$


Statement of Net Position and Governmental Funds Balance Sheet (Continued) August 31, 2019


Special Debt Capital StatementGeneral Revenue Service Projects of Net

Fund Fund Fund Fund Total Adjustments PositionLiabilities

Accounts payable 260,149$ 92,704$ 17,515$ 3,624$ 373,992$ -$ 373,992$ Accrued interest payable - - 6,645 - 6,645 49,836 56,481 Customer deposits 309,435 - - - 309,435 - 309,435 Operating deposits - 53,417 - - 53,417 - 53,417 Developer deposits 572,744 - - - 572,744 - 572,744 Unearned tap connection fees 83,176 - - - 83,176 - 83,176 Interfund payable 80,282 102,963 3,140 - 186,385 (186,385) - Long-term liabilities:

Due within one year - - - - - 1,345,000 1,345,000 Due after one year - - - - - 49,544,685 49,544,685

Total liabilities 1,305,786 249,084 27,300 3,624 1,585,794 50,753,136 52,338,930

Deferred Inflows of Resources

Deferred property tax revenues 15,530 0 40,181 0 55,711 (55,711) 0

Fund Balances/Net Position

Fund balances:Nonspendable, prepaid expenditures 12,625 - - - 12,625 (12,625) - Restricted:

Debt service on unlimited tax bonds - - 3,380,532 - 3,380,532 (3,380,532) -

Water, sewer and drainage - - - 1,162,027 1,162,027 (1,162,027) -

Assigned, future expenditures 90,000 - - - 90,000 (90,000) -

Unassigned 6,692,322 - - - 6,692,322 (6,692,322) -

Total fund balances 6,794,947 0 3,380,532 1,162,027 11,337,506 (11,337,506) 0

Total liabilities, deferred inflowsof resources and fund balances 8,116,263$ 249,084$ 3,448,013$ 1,165,651$ 12,979,011$

Net position:

Net investment in capital assets (1,670,174) (1,670,174)

Restricted for debt service 3,391,851 3,391,851 Restricted for capital projects 125,072 125,072 Unrestricted (3,703,430) (3,703,430)

Total net position (1,856,681)$ (1,856,681)$


Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances

Year Ended August 31, 2019


Special Debt Capital StatementGeneral Revenue Service Projects of

Fund Fund Fund Fund Total Adjustments ActivitiesRevenues

Property taxes 1,395,038$ -$ 3,241,065$ -$ 4,636,103$ (17,278)$ 4,618,825$ City of Houston rebates 73,733 - - - 73,733 - 73,733 Water service 1,133,912 - - - 1,133,912 - 1,133,912 Sewer service 1,136,816 605,422 - - 1,742,238 (425,592) 1,316,646 Surface water conversion 721,721 - - - 721,721 - 721,721 Penalty and interest 192,856 - 42,040 - 234,896 4,428 239,324 Tap connection and inspection fees 163,432 - - - 163,432 - 163,432 Investment income 150,815 - 108,932 18,643 278,390 - 278,390 Other income 4,548 176 - - 4,724 988,877 993,601

Total revenues 4,972,871 605,598 3,392,037 18,643 8,989,149 550,435 9,539,584

Expenditures/ExpensesService operations:

Purchased services 747,646 - - - 747,646 (425,592) 322,054 Lease payments 151,500 - - - 151,500 - 151,500 Professional fees 302,934 2,400 15,020 - 320,354 2,363 322,717 Contracted services 835,732 77,547 78,937 - 992,216 281 992,497 Utilities 84,165 105,122 - - 189,287 - 189,287 Repairs and maintenance 715,742 396,051 - - 1,111,793 2,800 1,114,593 Other expenditures 207,555 24,478 4,715 45 236,793 - 236,793 Tap connections 53,539 - - - 53,539 - 53,539

Capital outlay 92,088 - - 5,074,506 5,166,594 (5,166,594) -

Conveyance of capital assets - - - - - 502,226 502,226 Depreciation - - - - - 1,020,891 1,020,891 Debt service:

Principal retirement - - 1,330,000 - 1,330,000 (1,330,000) -

Interest and fees - - 1,802,233 - 1,802,233 146,550 1,948,783

Debt issuance costs - - 461 400,716 401,177 - 401,177

Total expenditures/expenses 3,190,901 605,598 3,231,366 5,475,267 12,503,132 (5,247,075) 7,256,057

Excess (Deficiency) of RevenuesOver Expenditures 1,781,970 0 160,671 (5,456,624) (3,513,983) 5,797,510


Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances (Continued)



Special Debt Capital StatementGeneral Revenue Service Projects of

Fund Fund Fund Fund Total Adjustments Activities Other Financing Sources (Uses)

General obligation bonds issued -$ -$ -$ 6,150,000$ 6,150,000$ (6,150,000)$

Interfund transfers in (out) 83,311 - - (83,311) - -

Discount on debt issued - - - (184,500) (184,500) 184,500

Total other financing sources 83,311 0 0 5,882,189 5,965,500 (5,965,500)

Excess of Revenues and OtherFinancing Sources Over Expenditures and Other Financing Uses 1,865,281 - 160,671 425,565 2,451,517 (2,451,517)

Change in Net Position 2,283,527 2,283,527$

Fund Balances/Net PositionBeginning of year 4,929,666 - 3,219,861 736,462 8,885,989 - (4,140,208)

End of year 6,794,947$ 0$ 3,380,532$ 1,162,027$ 11,337,506$ 0$ (1,856,681)$

Harris County Municipal Utility District No. 278, of Harris County, Texas Notes to Financial Statements

August 31, 2019

14

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Harris County Municipal Utility District No. 278, of Harris County, Texas (the District), was created by an order of the Texas Water Commission, now known as the Texas Commission on Environmental Quality (the Commission), effective March 27, 1985, in accordance with the Texas Water Code, Chapter 54. The District operates in accordance with Chapters 49 and 54 of the Texas Water Code and is subject to the continuing supervision of the Commission. The principal functions of the District are to finance, construct, own and operate waterworks, wastewater and drainage facilities and to provide such facilities and services to the customers of the District.

The District is governed by a Board of Directors (the Board) consisting of five individuals who are residents or owners of property within the District and are elected by voters within the District. The Board sets the policies of the District. The accounting and reporting policies of the District conform to accounting principles generally accepted in the United States of America for state and local governments, as defined by the Governmental Accounting Standards Board. The following is a summary of the significant accounting and reporting policies of the District:

Reporting Entity

The accompanying government-wide financial statements present the financial statements of the District. There are no component units that are legally separate entities for which the District is considered to be financially accountable. Accountability is defined as the District's substantive appointment of the voting majority of the component unit's governing board. Furthermore, to be financially accountable, the District must be able to impose its will upon the component unit or there must be a possibility that the component unit may provide specific financial benefits to, or impose specific financial burdens on, the District.

Government-wide and Fund Financial Statements

In accordance with required reporting standards, the District reports its financial activities as a special-purpose government. Special-purpose governments are governmental entities which engage in a single governmental program, such as the provision of water, wastewater, drainage and other related services. The financial statements of special-purpose governments combine two types of financial statements into one statement. These two types of financial statements are the government-wide financial statements and the fund financial statements. The fund financial statements are presented with a column for adjustments to convert to the government-wide financial statements.

The government-wide financial statements report information on all of the activities of the District. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Governmental activities generally are financed through taxes, charges for services and intergovernmental revenues. The statement of activities reflects the revenues and expenses of the District.


August 31, 2019

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The fund financial statements provide information about the District's governmental funds. Separate statements for each governmental fund are presented. The emphasis of fund financial statements is directed to specific activities of the District.

The District presents the following major governmental funds:

General Fund – The general fund is the primary operating fund of the District which accounts for all financial resources not accounted for in another fund. Revenues are derived primarily from property taxes, charges for services and interest income.

Special Revenue Fund – Accounts for revenues and expenditures involving specific revenue sources that are legally restricted to expenditures for specified purposes. The primary source of revenue is participant fees.

Debt Service Fund – The debt service fund is used to account for financial resources that are restricted, committed or assigned to expenditures for principal and interest related costs, as well as the financial resources being accumulated for future debt service.

Capital Projects Fund – The capital projects fund is used to account for financial resources that are restricted, committed or assigned to expenditures for capital outlays.

Fund Balances – Governmental Funds

The fund balances for the District's governmental funds can be displayed in up to five components:

Nonspendable – Amounts that are not in a spendable form or are required to be maintained intact.

Restricted – Amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may be changed or lifted only with the consent of resource providers.

Committed – Amounts that can be used only for the specific purposes determined by resolution of the Board. Commitments may be changed or lifted only by issuance of a resolution by the District's Board.

Assigned – Amounts intended to be used by the District for specific purposes as determined by management. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the purpose of that fund.

Unassigned – The residual classification for the general fund and includes all amounts not contained in the other classifications.


August 31, 2019

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The District considers restricted amounts to have been spent when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. The District applies committed amounts first, followed by assigned amounts, and then unassigned amounts when an expenditure is incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used.

Measurement Focus and Basis of Accounting

Government-wide Financial Statements

The government-wide financial statements are reported using the economic resources measurement focus and accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of the timing of related cash flows.

Nonexchange transactions, in which the District receives (or gives) value without directly giving (or receiving) equal value in exchange, include property taxes and donations. Recognition standards are based on the characteristics and classes of nonexchange transactions. Revenues from property taxes are recognized in the period for which the taxes are levied. Intergovernmental revenues are recognized as revenues, net of estimated refunds and uncollectible amounts, in the accounting period when an enforceable legal claim to the assets arises and the use of resources is required or is first permitted. Donations are recognized as revenues, net of estimated uncollectible amounts, as soon as all eligibility requirements imposed by the provider have been met. Amounts received before all eligibility requirements have been met are reported as liabilities.

Fund Financial Statements

Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and liabilities are generally included on the balance sheet. The statement of governmental funds revenues, expenditures and changes in fund balances presents increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in spendable resources. General capital asset acquisitions are reported as expenditures and proceeds of long-term debt are reported as other financing sources. Under the modified accrual basis of accounting, revenues are recognized when both measurable and available. The District considers revenues reported in the governmental funds to be available if they are collectible within 60 days after year-end. Principal revenue sources considered susceptible to accrual include taxes, charges for services and investment income. Other revenues are considered to be measurable and available only when cash is received by the District. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which are recognized as expenditures when payment is due.


August 31, 2019

17

Deferred Outflows and Inflows of Resources

A deferred outflow of resources is a consumption of net position that is applicable to a future reporting period and a deferred inflow of resources is an acquisition of net position that is applicable to a future reporting period.

Interfund Transactions

Transfers from one fund to another fund are reported as interfund receivables and payables if there is intent to repay the amount and if there is the ability to repay the advance on a timely basis. Operating transfers represent legally authorized transfers from the fund receiving resources to the fund through which the resources are to be expended.

Pension Costs

The District does not participate in a pension plan and, therefore, has no pension costs.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and deferred inflows and outflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates.

Investments and Investment Income

Investments in certificates of deposit, mutual funds, U.S. Government and agency securities, and certain pooled funds, which have a remaining maturity of one year or less at the date of purchase, are recorded at amortized cost. All other investments are carried at fair value. Fair value is determined using quoted market values.

Investment income includes dividends and interest income and the net change for the year in the fair value of investments carried at fair value. Investment income is credited to the fund in which the investment is recorded.

Property Taxes

An appraisal district annually prepares appraisal records listing all property within the District and the appraised value of each parcel or item as of January 1. Additionally, on January 1, a tax lien attaches to property to secure the payment of all taxes, penalty and interest ultimately imposed for the year on the property. After the District receives its certified appraisal roll from the appraisal

Harris County Municipal Utility District No. 278,of Harris County, TexasNotes to Financial Statements

August 31, 2019

18

district, the rate of taxation is set by the Board of the District based upon the aggregate appraisal value. Taxes are due and payable October 1 or when billed, whichever is later, and become delinquent after January 31 of the following year.

In the governmental funds, property taxes are initially recorded as receivables and deferred inflows of resources at the time the tax levy is billed. Revenues recognized during the fiscal year ended August 31, 2019, include collections during the current period or within 60 days of year-end related to the 2018 and prior years' tax levies.

In the government-wide statement of net position, property taxes are considered earned in the budget year for which they are levied. For the District's fiscal year ended August 31, 2019, the 2018 tax levy is considered earned during the current fiscal year. In addition to property taxes levied, any delinquent taxes are recorded net of amounts considered uncollectible.

Capital Assets

Capital assets, which include property, plant, equipment and infrastructure, are reported in the government-wide financial statements. Capital assets are defined by the District as assets with an individual cost of $5,000 or more and an estimated useful life of two years or more. Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated capital assets are recorded at their estimated acquisition value at the date of donation.

The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset lives are not capitalized.

Capital assets are depreciated using the straight-line method over their estimated useful lives as follows:

Years

Water production and distribution facilities 10-45Wastewater collection and treatment facilities 10-45

Deferred Amount on Debt Refundings

In the government-wide financial statements, the difference between the reacquisition price and the net carrying amount of the old debt in a debt refunding is deferred and amortized to interest expense using the effective interest rate method over the remaining life of the old debt or the life of the new debt, whichever is shorter. Such amounts are classified as deferred outflows or inflows of resources.


August 31, 2019

19

Debt Issuance Costs

Debt issuance costs, other than prepaid insurance, do not meet the definition of an asset or deferred outflows of resources since the costs are not applicable to a future period and, therefore, are recognized as an expense/expenditure in the period incurred.

Long-term Obligations

In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities. Premiums and discounts on bonds are recognized as a component of long-term liabilities and amortized over the life of the related debt using the effective interest rate method. Bonds payable are reported net of the applicable bond premium or discount.

In the fund financial statements, governmental fund types recognize premiums and discounts on bonds during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

Net Position/Fund Balances

Fund balances and net position are reported as restricted when constraints placed on them are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or are imposed by law through constitutional provisions or enabling legislation.

When both restricted and unrestricted resources are available for use, generally, it is the District's policy to use restricted resources first.

The components of unrestricted net position at August 31, 2019, are as follows:

General fund, unrestricted fund balance, including deferred taxes 6,810,477$

Long-term debt on conveyed capital assets (10,513,907)

Total (3,703,430)$

The District has financed drainage facilities, which have been assumed by Harris County for maintenance and other incidents of ownership, which has caused long-term debt to be in excess of capital assets.

Reconciliation of Government-wide and Fund Financial Statements

Amounts reported for net position of governmental activities in the statement of net position and fund balances in the governmental funds balance sheet are different because of the following.


August 31, 2019

20

Capital assets used in governmental activities are not financial resources and are not reported in the funds. 36,338,376$ Property tax revenue recognition and the related reduction of deferred inflows of resources are subject to availability of funds in the fund financial statements. 55,711

Penalty and interest on delinquent taxes is not receivable in the current period and is not reported in the funds. 20,974

Deferred amount on debt refundings for governmental activities are not financial resources and are not reported in the funds. 1,330,273

Accrued interest on long-term liabilities is not payable with current financial resources and is not reported in the funds. (49,836)

Long-term debt obligations are not due and payable in the current period and are not reported in the funds. (50,889,685)

Adjustment to fund balances to arrive at net position. (13,194,187)$

Amounts reported for change in net position of governmental activities in the statement of activities are different from change in fund balances in the governmental funds statement of revenues, expenditures and changes in fund balances because:

Change in fund balances. 2,451,517$ Governmental funds report capital outlays as expenditures. However, for government-wide financial statements, the cost of capitalized assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlay expenditures exceeded depreciation expense, noncapitalized costs and conveyance of capital assets in the current period. 3,638,033

Governmental funds report the effect of premiums and discounts when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. 184,500 Governmental funds report proceeds from the sales of bonds because they provide current financial resources to governmental funds. Principal payments on debt are recorded as expenditures. None of these transactions, however, have any effect on the net position. (4,820,000)

Revenues that do not provide current financial resources are not reported as revenues for the funds, but are reported as revenues in the statements of activities. 976,027 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Expenses which have previously been reported in the statement of activities are considered expenditures for governmental funds. (146,550) Change in net position of governmental activities. 2,283,527$


August 31, 2019

21

Note 2: Deposits, Investments and Investment Income

Deposits

Custodial credit risk is the risk that, in the event of a bank failure, a government's deposits may not be returned to it. The District's deposit policy for custodial credit risk requires compliance with the provisions of state law.

State law requires collateralization of all deposits with federal depository insurance; a surety bond; bonds and other obligations of the U.S. Treasury, U.S. agencies or instrumentalities of the State of Texas; or certain collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States.

At August 31, 2019, none of the District's bank balances were exposed to custodial credit risk.

Investments

The District may legally invest in obligations of the United States or its agencies and instrumentalities, direct obligations of Texas or its agencies or instrumentalities, collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, other obligations guaranteed as to principal and interest by the State of Texas or the United States or their agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States, obligations of states, agencies and counties and other political subdivisions with an investment rating not less than "A," insured or collateralized certificates of deposit, and certain bankers' acceptances, repurchase agreements, mutual funds, commercial paper, guaranteed investment contracts and investment pools.

The District's investment policy may be more restrictive than the Public Funds Investment Act.

The District invests in Texas CLASS, an external investment pool that is not registered with the Securities and Exchange Commission. A Board of Trustees, elected by the participants, has oversight of Texas CLASS. The District's investments may be redeemed at any time. Texas CLASS attempts to minimize its exposure to market and credit risk through the use of various strategies and credit monitoring techniques and limits its investments in any issuer to the top two ratings issued by nationally recognized statistical rating organizations.


August 31, 2019

22

At August 31, 2019, the District had the following investments and maturities:

Less Than More ThanType Fair Value 1 1-5 6-10 10

Texas CLASS 5,531,562$ 5,531,562$ 0$ 0$ 0$

Maturities in Years

Interest Rate Risk. As a means of limiting exposure to fair value losses arising from rises in interest rates, the District's investment policy does not allow investments in certain mortgage-backed securities, collateralized mortgage obligations with a final maturity date in excess of 10 year and interest rate indexed collateralized mortgage obligations. The external investment pool is presented in an investment with a maturity of less than one year because it is redeemable in full immediately.

Credit Risk. Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. At August 31, 2019, the District's investments in Texas CLASS were rated "AAAm" by Standard & Poor's.

Summary of Carrying Values

The carrying values of deposits and investments shown previously are included in the balance sheet at August 31, 2019, as follows:

Carrying value:Deposits 6,780,442$ Investments 5,531,562

Total 12,312,004$

Included in the following statement of net position captions:

Cash 560,442$ Certificates of deposit 6,220,000 Short-term investments 5,531,562

Total 12,312,004$


August 31, 2019

23

Investment Income

Investment income of $278,390 for the year ended August 31, 2019, consisted of interest income.

Fair Value Measurements

The District has the following recurring fair value measurements as of August 31, 2019:

Pooled investments of $5,531,562 are valued at fair value per share of the pool's underlying portfolio.

Note 3: Capital Assets

A summary of changes in capital assets for the year ended August 31, 2019, is presented below:

Governmental Activities

Balances, Beginning

of Year Additions Retirements

Balances,End

of Year

Capital assets, non-depreciable:Land and improvements 11,395,900$ 325,164$ -$ 11,721,064$ Construction in progress 8,715 89,288 - 98,003

Total capital assets, non-depreciable 11,404,615 414,452 0 11,819,067

Capital assets, depreciable:Water production and distribution facilities 12,785,238 353,047 - 13,138,285 Wastewater collection and treatment facilities 24,576,165 471,027 (3,531,566) 21,515,626

Total capital assets, depreciable 37,361,403 824,074 (3,531,566) 34,653,911

Less accumulated depreciation:Water production and distribution facilities (3,299,647) (324,468) - (3,624,115) Wastewater collection and treatment facilities (6,802,941) (696,423) 988,877 (6,510,487)

Total accumulated depreciation (10,102,588) (1,020,891) 988,877 (10,134,602)

Total governmental activities, net 38,663,430$ 217,635$ (2,542,689)$ 36,338,376$


August 31, 2019

24

Note 4: Long-term Liabilities

Changes in long-term liabilities for the year ended August 31, 2019, were as follows:

Governmental Activities

Balances, Beginning

of Year Increases Decreases

Balances, End

of Year

AmountsDue in

One Year

Bonds payable:General obligation bonds 46,820,000$ 6,150,000$ 1,330,000$ 51,640,000$ 1,345,000$ Add premiums on bonds 94,572 - 2,020 92,552 - Less discounts on bonds 682,059 184,500 23,692 842,867 -

46,232,513 5,965,500 1,308,328 50,889,685 1,345,000 Due to developers 6,951,964 - 6,951,964 - -

Total governmental activities long-term

liabilities 53,184,477$ 5,965,500$ 8,260,292$ 50,889,685$ 1,345,000$

General Obligation Bonds

Amounts outstanding, August 31, 2019

Interest rates

Maturity dates, serially beginning/ending

Interest payment dates

Callable dates*


Interest rates



Callable dates*

Refunding

$2,400,000

2.000% to 4.375%

March 1/ September 1

$5,345,000

2.00% to 4.00%

September 1,

Series 2013


2020/2031

September 1, 2020

2020/2023

RefundingSeries 2015

$20,615,000

2.00% to 3.25%


2020/2036

September 1, 2022

Refunding

2.00% to 4.00%

$2,715,000


Series 2014

September 1,

September 1, 2021

September 1,2020/2038

Series 2014

September 1, 2021

September 1,

*Or any date thereafter; callable at par plus accrued interest to the date of redemption.


August 31, 2019

25


Interest rates



Callable dates*

Amount outstanding, August 31, 2019

Interest rates



Callable date*


Series 2019

September 1,

$6,150,000

$2,865,000


Series 2016 Series 2018Refunding

3.00% to 5.50%



September 1, 2024

September 1,

$11,550,000

4.00% to 4.25% 2.25% to 4.00%

2020/2043 2020/2037

September 1, 2023 September 1, 2023

*Or any date thereafter; callable at par plus accrued interest to the date of redemption.

Annual Debt Service Requirements

The District has been paying the amount due September 1 within the fiscal year preceding this due date, and the following schedule has been prepared assuming that this practice will be followed in future years. The schedule shows the annual debt service requirements to pay principal and interest on general obligation bonds outstanding at August 31, 2019.

Year Principal Interest Total

2020 1,345,000$ 1,997,060$ 3,342,060$ 2021 1,405,000 1,913,239 3,318,239 2022 1,445,000 1,872,612 3,317,612 2023 1,505,000 1,828,426 3,333,426 2024 1,575,000 1,779,300 3,354,300

2025-2029 8,665,000 8,030,480 16,695,480 2030-2034 10,555,000 6,251,030 16,806,030 2035-2039 11,195,000 3,976,051 15,171,051 2040-2044 9,975,000 1,765,031 11,740,031 2045-2046 3,975,000 191,407 4,166,407

Total 51,640,000$ 29,604,636$ 81,244,636$

Harris County Municipal Utility District No. 278,of Harris County, TexasNotes to Financial Statements

August 31, 2019

26

The bonds are payable from the proceeds of an ad valorem tax levied upon all property within the District subject to taxation, without limitation as to rate or amount.

Voter-authorized bonds voted $ 80,400,000*

Bonds sold 61,235,000*

Voter-authorized refunding bonds voted 80,400,000*

Refunding bond authorization used 2,139,359*

*The District has issued $38,910,000 of refunding bonds; however, of such amount, $2,139,359 has been applied to the voter-authorized bonds and the remaining $36,770,641 has been issued pursuant to Chapter 1207 of the Texas Government Code.

Note 5: Significant Bond Order and Commission Requirements

A. The Bond Orders require that the District levy and collect an ad valorem debt service tax sufficient to pay interest and principal on bonds when due. During the year ended August 31, 2019, the District levied an ad valorem debt service tax at the rate of $0.6500 per $100 of assessed valuation, which resulted in a tax levy of $3,226,686 on the taxable valuation of $496,413,284 for the 2018 tax year. The interest and principal requirements paid from the tax revenues and available resources were $3,129,945.

B. During the current fiscal year, the District transferred $83,311 from the capital projects fund to the general fund. The transfer was in accordance with the rules of the Commission.

Note 6: Maintenance Taxes

At an election held May 1, 1993, voters authorized a maintenance tax not to exceed $1.00 per $100 valuation on all property within the District subject to taxation. During the year ended August 31, 2019, the District levied an ad valorem maintenance tax at the rate of $0.2800 per $100 of assessed valuation, which resulted in a tax levy of $1,389,957 on the taxable valuation of $496,413,284 for the 2018 tax year. The maintenance tax is being used by the general fund to pay expenditures of operating the District.


August 31, 2019

27

Note 7: Wastewater Treatment Plant Lease

On November 11, 2015, the District entered into a lease of digester basins, chlorine basin and associated equipment. The lease term is for 60 months with monthly payments of $12,625 upon substantial completion of the installation, which occurred in December 2016. During the current year, the District incurred fees of $151,500 related to the lease. Future minimum lease payments under the lease are:

2020 151,500$ 2021 151,500 2022 50,500

353,500$

Note 8: Strategic Partnership Agreement

Effective December 12, 2008, the District and the City of Houston (the City) entered into a Strategic Partnership Agreement (the Agreement) under which the City annexed a tract of land (the tract) within the boundaries of the District for limited purposes. The District continues to exercise all powers and functions of a municipal utility district as provided by law. As consideration for the District providing services as detailed in the Agreement, the City agrees to remit one-half of all City sales and use tax revenues generated within the boundaries of the tract. As consideration for the sales and use tax payments by the City, the District agrees to continue to provide and develop water, sewer and drainage services within the District in lieu of full-purpose annexation. The City agrees it will not annex the District for full purposes or commence any action to annex the District during the term of the Agreement, which is 30 years. On December 5, 2017, the Agreement was amended to annex an additional tract of land in the District. During the current year, the District recorded $73,733 in revenues related to the Agreement.

Note 9: Sanitary Sewage Treatment and Disposal Agreement With Harris County

Effective January 8, 2013, and as amended December 5, 2017, the District entered into a 15-year agreement with Harris County to provide capacity to treat wastewater from Harris County at the District's wastewater treatment plant No. 3. Harris County must pay a monthly service fee. Fixed operating costs are shared based on allocated capacity. Variable operating costs are shared based on total amount of waste delivered to the plant by Harris County as a percentage of total waste delivered. Harris County has paid the District a security deposit of $53,417 as a plant operating reserve.


August 31, 2019

28

For the year ended August 31, 2019, the District billed Harris County and the District $179,830 and $425,592, respectively.

Note 10: Risk Management

The District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the District carries commercial insurance. The District has not significantly reduced insurance coverage or had settlements which exceeded coverage amounts in the past three fiscal years.

Required Supplementary Information


Budgetary Comparison Schedule – General Fund Year Ended August 31, 2019

29

OriginalBudget

FinalAmendedBudget Actual

Variance Favorable

(Unfavorable)Revenues

Property taxes 1,416,700$ 1,416,700$ 1,395,038$ (21,662)$ City of Houston rebates 55,000 55,000 73,733 18,733 Water service 1,125,300 1,125,300 1,133,912 8,612 Sewer service 1,099,600 1,099,600 1,136,816 37,216 Surface water conversion 735,000 735,000 721,721 (13,279) Penalty and interest 152,500 152,500 192,856 40,356 Tap connection and inspection fees 133,000 133,000 163,432 30,432 Investment income 40,450 40,450 150,815 110,365 Other income 4,000 4,000 4,548 548

Total revenues 4,761,550 4,761,550 4,972,871 211,321

ExpendituresService operations:

Purchased services 927,400 927,400 747,646 179,754 Lease payments 151,500 151,500 151,500 - Professional fees 320,600 320,600 302,934 17,666 Contracted services 795,180 795,180 835,732 (40,552) Utilities 99,475 120,000 84,165 35,835 Repairs and maintenance 726,000 726,000 715,742 10,258 Other expenditures 199,025 209,025 207,555 1,470 Tap connections 35,200 35,200 53,539 (18,339)

Capital outlay 695,000 695,000 92,088 602,912

Total expenditures 3,949,380 3,979,905 3,190,901 789,004

Excess of Revenues Over Expenditures 812,170 781,645 1,781,970 1,000,325

Other Financing SourcesInterfund transfers in - - 83,311 83,311

Excess of Revenues and TransfersIn Over Expenditures andTransfers Out 812,170 781,645 1,865,281 1,083,636

Fund Balance, Beginning of Year 4,929,666 4,929,666 4,929,666 -

Fund Balance, End of Year 5,741,836$ 5,711,311$ 6,794,947$ 1,083,636$


Budgetary Comparison Schedule – Special Revenue Fund Year Ended August 31, 2019

30

OriginalBudget Actual

Variance Favorable

(Unfavorable)Revenues

Service fees 687,560$ 605,422$ (82,138)$ Other income 130 176 46

Total revenues 687,690 605,598 (82,092)


Professional fees 11,900 2,400 9,500 Contracted services 76,590 77,547 (957) Utilities 115,000 105,122 9,878 Repairs and maintenance 467,500 396,051 71,449 Other expenditures 16,700 24,478 (7,778)

Total expenditures 687,690 605,598 82,092

Excess of Revenues Over Expenditures - - -

Fund Balance, Beginning of Year - - -

Fund Balance, End of Year 0$ 0$ 0$


Notes to Required Supplementary Information August 31, 2019

31

Budgets and Budgetary Accounting

Annual operating budgets are prepared for the general and special revenue funds by the District's consultants. The budgets reflect resources expected to be received during the year and expenditures expected to be incurred. The Board of Directors is required to adopt the budgets prior to the start of its fiscal year. The budgets are not a spending limitation (a legally restricted appropriation). The original budget for the general fund was amended and the original budget for the special revenue fund was not amended during fiscal 2019.

The District prepares its annual operating budgets on a basis consistent with accounting principles generally accepted in the United States of America. The Budgetary Comparison Schedules – General Fund and Special Revenue Fund present the original and revised budget amounts, if revised, compared to the actual amounts of revenues and expenditures for the current year.

Other Information


Other Schedules Included Within This Report August 31, 2019

32

(Schedules included are checked or explanatory notes provided for omitted schedules.)

[X] Notes Required by the Water District Accounting Manual See "Notes to Financial Statements," Pages 14-28

[X] Schedule of Services and Rates

[X] Schedule of General Fund Expenditures

[X] Schedule of Temporary Investments

[X] Analysis of Taxes Levied and Receivable

[X] Schedule of Long-term Debt Service Requirements by Years

[X] Changes in Long-term Bonded Debt

[X] Comparative Schedule of Revenues and Expenditures – General Fund and Debt Service Fund – Five Years

[X] Board Members, Key Personnel and Consultants

Harris County Municipal Utility District No. 278, of Harris County, Texas Schedule of Services and Rates


33

1. Services provided by the District:

X Retail Water Wholesale Water X DrainageX Retail Wastewater Wholesale Wastewater Irrigation

Parks/Recreation Fire Protection SecurityX Solid Waste/Garbage Flood Control Roads

Participates in joint venture, regional system and/or wastewater service (other than emergency interconnect)Other

2. Retail service providers

a. Retail rates for a 5/8" meter (or equivalent):Flat

Minimum RateCharge Y/N

Water: 20.50$ N 1.25$ 1,001 to 5,000 2.25$ 5,001 to 10,000 3.25$ 10,001 to 20,000 4.25$ 20,001 to No Limit

Wastewater: 30.50$ Y

City of Houston GRP fee: 3.47$ N 3.47$ 1 to No Limit

Does the District employ winter averaging for wastewater usage? Yes No X

Total charges per 10,000 gallons usage (including fees): 71.45$ 30.50$

b. Water and wastewater retail connections:ESFCFactor

Unmetered x1.0≤ 3/4" x1.01" x2.51 1/2" x5.02" x8.03" x15.04" x25.06" x50.08" x80.010" x115.0Total waterTotal wastewater x1.0

3. Total water consumption (in thousands) during the fiscal year:Gallons pumped into the system:Gallons billed to customers:Water accountability ratio (gallons billed/gallons pumped):

*"ESFC" means equivalent single-family connections

226,470 214,105

94.54%

2,977

-

- 25

2,977 200

55 184

-

3,092 3,059 3,059

3,441

- -

-

3,119

- -

1

- - -

3,084

81

ConnectionsActive

12

- 1

Total Connections

-

Meter Size

1

23

80 11 23

3,002 -

MinimumUsage Usage Levels

Rate Per 1,000 Gallons Over

Minimum

1,000

ESFC*

-

Wastewater

0

Water

Active


Schedule of General Fund Expenditures Year Ended August 31, 2019

34

-$

20,200$ 174,030 108,704

- 302,934

Purchased Services for Resale747,646

-

31,383 60,000

- -

2,880 224,406 318,669

84,165

715,742

28,200 30,866 29,398

107,886 196,350

89,288 2,800 92,088

53,539

517,063

151,500

-

11,205

3,190,901$

Personnel (including benefits)

Professional Fees

Bulk water and wastewater service purchases

Regional Water Fee

Contracted Services

AuditingLegalEngineeringFinancial advisor

BookkeepingGeneral managerAppraisal districtTax collectorSecurityOther contracted services

Utilities

Repairs and Maintenance

Administrative ExpendituresDirectors' feesOffice suppliesInsuranceOther administrative expenditures

Capital OutlayCapitalized assetsExpenditures not capitalized

Other Expenditures

Total expenditures

Tap Connection Expenditures

Solid Waste Disposal

Lease Payments

Parks and Recreation


Schedule of Temporary Investments August 31, 2019

35

Interest Rate

Maturity Date

Face Amount

AccruedInterest

Receivable

General FundCertificates of Deposit

No. 500007400 2.60% 03/05/20 240,000$ 3,060$ No. 91300011883030 2.75% 04/03/20 240,000 2,694 No. 6775977572 2.05% 08/26/20 240,000 108 No. 561 2.75% 06/24/20 240,000 1,212 No. 66000745 2.55% 11/04/19 240,000 5,030 No. 71117928 2.40% 11/28/19 200,000 3,656 No. 12064 2.58% 07/04/20 240,000 967 No. 440005204 2.80% 02/01/20 220,000 3,544 No. 102267 2.47% 10/29/19 240,000 5,002 No. 80001898 2.71% 01/31/20 200,000 3,163 No. 4189598 2.45% 09/27/19 120,000 2,714 No. 0107363028 2.75% 03/26/20 240,000 2,839 No. 16232 2.45% 12/04/19 220,000 3,987 No. 3216000287 2.60% 02/03/20 240,000 3,590 No. 6000027414 2.60% 05/11/20 240,000 1,898 No. 9009004131 2.55% 12/26/19 100,000 1,733

Texas CLASS 2.25% Demand 2,015,489 - Texas CLASS 2.25% Demand 1,353,253 - Texas CLASS 2.25% Demand 458,131 -

7,286,873 45,197


Schedule of Temporary Investments (Continued) August 31, 2019

36

Interest Rate

Maturity Date

Face Amount

AccruedInterest

Receivable

Debt Service FundCertificates of Deposit

No. 91300011896016 2.75% 08/13/20 240,000$ 325$ No. 6775239873 2.50% 08/04/20 240,000 427 No. 66000931 2.10% 08/20/20 240,000 138 No. 12099 2.22% 08/20/20 240,000 146 No. 306290 2.71% 02/13/20 200,000 2,955 No. 4189021 2.65% 02/21/20 240,000 3,328 No. 2000000051 2.65% 02/22/20 240,000 3,311 No. 36000607 2.45% 08/08/20 200,000 295 No. 3116003324 2.60% 02/24/20 240,000 3,248 No. 6000018082 2.60% 08/09/20 200,000 300 No. 6924 2.00% 08/26/20 240,000 105 No. 6002400109 2.05% 08/21/20 240,000 135

Texas CLASS 2.25% Demand 542,388 -

3,302,388 14,713

Capital Projects FundTexas CLASS 2.25% Demand 10,033 - Texas CLASS 2.25% Demand 1,152,268 -

1,162,301 0

Totals 11,751,562$ 59,910$


Analysis of Taxes Levied and Receivable Year Ended August 31, 2019

37

DebtMaintenance Service

Taxes Taxes

19,878$ 53,111$ 733 1,449

20,611 54,560

2018 Original Tax Levy 1,319,389 3,062,868 70,568 163,818

1,389,957 3,226,686

1,410,568 3,281,246

(1,381,644) (3,207,388) (13,394) (33,677)

15,530$ 40,181$

Receivable, by Years8,313$ 19,298$ 2,885 6,539 2,338 5,689

643 2,057 230 1,164 198 1,288 181 1,175 196 825 190 777 255 990 101 379

15,530$ 40,181$

Additions and corrections to prior years' taxes

Additions and corrections

Adjusted tax levy

Adjusted receivable, beginning of year

Receivable, end of year

Receivable, end of year

2012

Total to be accounted for

Tax collections: Current yearPrior years

2011

2015

2018

2006

Receivable, Beginning of Year

20142013

20162017

20102009


Analysis of Taxes Levied and Receivable (Continued) Year Ended August 31, 2019

38

Percent of Taxes Collected to99% 99% 99% 99%

**Calculated as taxes collected for a tax year divided by taxes levied for that tax year.

0.7300$ Maintenance tax rates* 0.2500

1.0500$

0.2800

0.9300$

0.3000

0.9800$

0.3000

Total tax rates per $100 valuation 1.0300$

0.8000$ 0.6800$

Property ValuationsLandImprovementsPersonal property

0.6500$

496,413,284$

Tax Rates per $100 ValuationDebt service tax rates

Exemptions

Total property valuations

2018 2017

455,519,286$

81,654,892$ 399,997,284

8,108,391 (34,241,281) (27,686,377)

85,324,462$ 429,777,151

8,998,048

2016

78,989,264$

(20,026,065)

355,317,300$

358,071,845 8,049,075

(42,552,302)

402,557,882$

2015

72,859,198$ 294,070,722

8,413,445

Tax Levy

*Maximum tax rate approved by voters: $1.00 on May 1, 1993

3,731,677$ 4,464,089$ 4,616,643$ 4,146,347$

Taxes Levied**


Schedule of Long-term Debt Service Requirements by Years August 31, 2019

39

Due During Principal Interest DueFiscal Years Due March 1,

Ending August 31 September 1 September 1 Total

2020 360,000$ 187,718$ 547,718$ 2021 385,000 177,819 562,819 2022 395,000 166,269 561,269 2023 410,000 154,419 564,419 2024 405,000 141,606 546,606 2025 425,000 128,444 553,444 2026 440,000 114,100 554,100 2027 460,000 98,700 558,700 2028 480,000 82,600 562,600 2029 505,000 63,400 568,400 2030 525,000 43,200 568,200 2031 555,000 22,200 577,200

Totals 5,345,000$ 1,380,475$ 6,725,475$

Refunding Series 2013

The District pays the amount due September 1 prior to that date. This schedule has been prepared assuming this practice will continue in the future.


Schedule of Long-term Debt Service Requirements by Years (Continued) August 31, 2019

40



2020 25,000$ 101,757$ 126,757$ 2021 25,000 101,195 126,195 2022 25,000 100,569 125,569 2023 25,000 99,881 124,881 2024 25,000 99,131 124,131 2025 25,000 98,331 123,331 2026 25,000 97,481 122,481 2027 25,000 96,581 121,581 2028 25,000 95,656 120,656 2029 25,000 94,656 119,656 2030 25,000 93,656 118,656 2031 25,000 92,656 117,656 2032 25,000 91,656 116,656 2033 25,000 90,656 115,656 2034 25,000 89,625 114,625 2035 25,000 88,563 113,563 2036 25,000 87,500 112,500 2037 675,000 86,406 761,406 2038 1,300,000 56,875 1,356,875

Totals 2,400,000$ 1,762,831$ 4,162,831$

Series 2014




41



2020 650,000$ 79,987$ 729,987$ 2021 660,000 63,738 723,738 2022 690,000 43,937 733,937 2023 715,000 23,238 738,238

Totals 2,715,000$ 210,900$ 2,925,900$





42



2020 230,000$ 776,518$ 1,006,518$ 2021 230,000 771,918 1,001,918 2022 230,000 767,319 997,319 2023 225,000 760,419 985,419 2024 1,015,000 753,669 1,768,669 2025 1,045,000 718,144 1,763,144 2026 1,075,000 681,569 1,756,569 2027 1,115,000 646,631 1,761,631 2028 1,155,000 607,606 1,762,606 2029 1,190,000 565,738 1,755,738 2030 1,235,000 521,113 1,756,113 2031 1,280,000 474,800 1,754,800 2032 1,955,000 423,600 2,378,600 2033 2,035,000 345,400 2,380,400 2034 2,120,000 264,000 2,384,000 2035 2,210,000 179,200 2,389,200 2036 2,270,000 90,800 2,360,800

Totals 20,615,000$ 9,348,444$ 29,963,444$





43



2020 50,000$ 488,875$ 538,875$ 2021 50,000 486,875 536,875 2022 50,000 484,875 534,875 2023 50,000 482,875 532,875 2024 50,000 480,875 530,875 2025 50,000 478,875 528,875 2026 50,000 476,875 526,875 2027 50,000 474,875 524,875 2028 50,000 472,875 522,875 2029 50,000 470,875 520,875 2030 50,000 468,875 518,875 2031 50,000 466,875 516,875 2032 50,000 464,875 514,875 2033 50,000 462,875 512,875 2034 50,000 460,875 510,875 2035 50,000 458,875 508,875 2036 50,000 456,875 506,875 2037 50,000 454,750 504,750 2038 475,000 452,625 927,625 2039 1,850,000 432,438 2,282,438 2040 1,950,000 353,812 2,303,812 2041 2,025,000 270,938 2,295,938 2042 2,125,000 184,875 2,309,875 2043 2,225,000 94,562 2,319,562

Totals 11,550,000$ 10,282,875$ 21,832,875$

Series 2016




44



2020 30,000$ 113,025$ 143,025$ 2021 30,000 112,350 142,350 2022 30,000 111,675 141,675 2023 55,000 111,000 166,000 2024 55,000 108,800 163,800 2025 55,000 106,600 161,600 2026 55,000 104,400 159,400 2027 55,000 102,200 157,200 2028 55,000 100,000 155,000 2029 55,000 97,800 152,800 2030 55,000 95,600 150,600 2031 55,000 93,400 148,400 2032 80,000 91,200 171,200 2033 80,000 88,000 168,000 2034 80,000 84,800 164,800 2035 75,000 81,600 156,600 2036 75,000 78,600 153,600 2037 1,890,000 75,600 1,965,600

Totals 2,865,000$ 1,756,650$ 4,621,650$





45



2020 -$ 249,180$ 249,180$ 2021 25,000 199,344 224,344 2022 25,000 197,968 222,968 2023 25,000 196,594 221,594 2024 25,000 195,219 220,219 2025 25,000 193,843 218,843 2026 25,000 192,469 217,469 2027 25,000 191,094 216,094 2028 25,000 189,718 214,718 2029 25,000 188,344 213,344 2030 25,000 186,969 211,969 2031 25,000 185,593 210,593 2032 25,000 184,219 209,219 2033 25,000 182,844 207,844 2034 25,000 181,468 206,468 2035 25,000 180,719 205,719 2036 25,000 179,969 204,969 2037 25,000 179,218 204,218 2038 50,000 178,469 228,469 2039 50,000 176,969 226,969 2040 50,000 175,468 225,468 2041 50,000 173,969 223,969 2042 50,000 172,469 222,469 2043 100,000 170,969 270,969 2044 1,400,000 167,969 1,567,969 2045 1,825,000 124,219 1,949,219 2046 2,150,000 67,188 2,217,188

Totals 6,150,000$ 4,862,461$ 11,012,461$

Series 2019




46

Due During Total Total TotalFiscal Years Principal Interest Principal and

Ending August 31 Due Due Interest Due

2020 1,345,000$ 1,997,060$ 3,342,060$ 2021 1,405,000 1,913,239 3,318,239 2022 1,445,000 1,872,612 3,317,612 2023 1,505,000 1,828,426 3,333,426 2024 1,575,000 1,779,300 3,354,300 2025 1,625,000 1,724,237 3,349,237 2026 1,670,000 1,666,894 3,336,894 2027 1,730,000 1,610,081 3,340,081 2028 1,790,000 1,548,455 3,338,455 2029 1,850,000 1,480,813 3,330,813 2030 1,915,000 1,409,413 3,324,413 2031 1,990,000 1,335,524 3,325,524 2032 2,135,000 1,255,550 3,390,550 2033 2,215,000 1,169,775 3,384,775 2034 2,300,000 1,080,768 3,380,768 2035 2,385,000 988,957 3,373,957 2036 2,445,000 893,744 3,338,744 2037 2,640,000 795,974 3,435,974 2038 1,825,000 687,969 2,512,969 2039 1,900,000 609,407 2,509,407 2040 2,000,000 529,280 2,529,280 2041 2,075,000 444,907 2,519,907 2042 2,175,000 357,344 2,532,344 2043 2,325,000 265,531 2,590,531 2044 1,400,000 167,969 1,567,969 2045 1,825,000 124,219 1,949,219 2046 2,150,000 67,188 2,217,188

Totals 51,640,000$ 29,604,636$ 81,244,636$

Annual Requirements For All Series


Changes in Long-term Bonded Debt Year Ended August 31, 2019

Interest rates

Dates interest payable

Maturity dates

Bonds outstanding, beginning of current year

Bonds sold during current year

Retirements, principal

Bonds outstanding, end of current year

Interest paid during current year

Paying agent's name and address:

Series 2010 - The Bank of New York Mellon Trust Company, N.A., Dallas, TexasSeries 2013R - The Bank of New York Mellon Trust Company, N.A., Dallas, TexasSeries 2014 - The Bank of New York Mellon Trust Company, N.A., Dallas, TexasSeries 2014R - The Bank of New York Mellon Trust Company, N.A., Dallas, TexasSeries 2015R - The Bank of New York Mellon Trust Company, N.A., Dallas, TexasSeries 2016 - The Bank of New York Mellon Trust Company, N.A., Dallas, TexasSeries 2018R - The Bank of New York Mellon Trust Company, N.A., Dallas, TexasSeries 2019 - The Bank of New York Mellon Trust Company, N.A., Dallas, Texas

Bond authority:

Amount authorized by votersAmount of voter authorized issued bonds *Voter authorized but unissued bonds

Debt service fund cash and temporary investment balances as of August 31, 2019:

Average annual debt service payment (principal and interest) for remaining term of all debt:

*The District has issued $38,910,000 of refunding bonds; however, of such amount, $2,139,359 has been applied to the voter-authorized bonds and the remaining $36,770,641 has been issued pursuant to Chapter 1207 of the Texas Government Code.

2,425,000$

25,000

102,256$

2,400,000$

September 1

-

25,000$

- -

5,695,000$

March 1/

2.000% to 4.375%

September 1September 1

78,260,641$ 02,139,359$

19,165,000$ 61,235,000$

0

196,469$

080,400,000$

938$

Tax Bonds

80,400,000$

3,387,959$

3,009,061$

Bond

Refunding BondsOther Bonds

Series 2014



3.75%2.00% to

4.00%


March 1/ March 1/

Series 2010

25,000 350,000

0$ 5,345,000$

47


2.25% to 4.00%

March 1/September 1


Series 2016

6,150,000$ 2,865,000$

Series 2019

3.00% to 5.50%

March 1/March 1/

225,000

March 1/September 1


20,840,000$

-

-$

1,330,000

46,820,000$

6,150,000 6,150,000

-

2,875,000$

-

10,000

September 1


September 1


11,610,000$

2,715,000$

95,863$


-

1,799,945$

51,640,000$ 11,550,000$

491,275$

-

60,000

20,615,000$

781,019$ 0$ 132,125$


2.00% to 3.25%

March 1/September 1

3,350,000$

TotalsRefunding

Series 2015

2.00% to 4.00%

4.00% to 4.25%

Issues

635,000


Comparative Schedule of Revenues and Expenditures – General Fund Five Years Ended August 31,

2019 2018 2017 2016 2015General Fund

RevenuesProperty taxes 1,395,038$ 1,356,536$ 1,203,742$ 887,351$ 541,833$ City of Houston rebates 73,733 61,815 57,326 55,803 49,771 Water service 1,133,912 1,114,670 853,819 769,673 718,721 Sewer service 1,136,816 1,071,178 929,646 846,521 779,457 Surface water conversion 721,721 725,808 641,553 418,842 495,021 Penalty and interest 192,856 163,799 150,141 134,356 147,959 Tap connection and inspection fees 163,432 245,387 280,514 182,585 198,912 Investment income 150,815 66,266 25,300 16,219 12,582 Other income 4,548 4,452 52,534 16,012 5,874 Sale of capacity - 1,128,216 - - -

Total revenues 4,972,871 5,938,127 4,194,575 3,327,362 2,950,130


Purchased services 747,646 945,232 1,230,049 1,250,502 1,050,925 Lease payments 151,500 151,500 101,000 - - Professional fees 302,934 387,921 377,561 236,058 213,671 Contracted services 835,732 765,068 720,008 615,400 605,800 Utilities 84,165 84,186 68,623 83,733 90,337 Repairs and maintenance 715,742 701,963 655,863 797,096 610,343 Other expenditures 207,555 203,204 210,865 150,077 152,173 Tap connections 53,539 82,181 105,500 65,706 69,675

Capital outlay 92,088 151,278 1,634,556 1,860,846 207,068 Debt service, debt issuance costs - - - 71,066 -

Total expenditures 3,190,901 3,472,533 5,104,025 5,130,484 2,999,992

Excess (Deficiency) of RevenuesOver Expenditures 1,781,970 2,465,594 (909,450) (1,803,122) (49,862)

Other Financing Sources (Uses)Interfund transfers in (out) 83,311 - 975,132 - (14,484)

Excess (Deficiency) of Revenues andTransfers In Over Expenditures andTransfers Out 1,865,281 2,465,594 65,682 (1,803,122) (64,346)

Fund Balance, Beginning of Year 4,929,666 2,464,072 2,398,390 4,201,512 4,265,858

Fund Balance, End of Year 6,794,947$ 4,929,666$ 2,464,072$ 2,398,390$ 4,201,512$

Total Active Retail Water Connections 3,092 2,991 2,838 2,661 2,540

Total Active Retail Wastewater Connections 3,059 2,960 2,810 2,637 2,518

Amounts

48

2019 2018 2017 2016 2015

28.0 % 22.9 % 28.7 % 26.7 % 18.4 %1.5 1.0 1.4 1.7 1.7

22.8 18.8 20.3 23.1 24.4 22.9 18.0 22.2 25.5 26.4 14.5 12.2 15.3 12.5 16.8 3.9 2.8 3.6 4.0 5.0 3.3 4.1 6.7 5.5 6.7 3.0 1.1 0.6 0.5 0.4 0.1 0.1 1.2 0.5 0.2

- 19.0 - - -

100.0 100.0 100.0 100.0 100.0

15.0 15.9 29.3 37.6 35.6 3.0 2.6 2.4 - - 6.1 6.5 9.0 7.1 7.2

16.8 12.9 17.2 18.5 20.5 1.7 1.4 1.6 2.5 3.1

14.4 11.9 15.7 24.0 20.7 4.1 3.3 5.0 4.5 5.2 1.1 1.4 2.5 2.0 2.4 1.9 2.6 39.0 55.9 7.0

- - - 2.1 -

64.1 58.5 121.7 154.2 101.7

35.9 % 41.5 % (21.7) % (54.2) % (1.7) %

Percent of Fund Total Revenues


Comparative Schedule of Revenues and Expenditures – Debt Service Fund Five Years Ended August 31,

2019 2018 2017 2016 2015Debt Service Fund

RevenuesProperty taxes 3,241,065$ 3,076,115$ 2,937,548$ 2,848,447$ 2,747,342$ Penalty and interest 42,040 32,401 39,208 43,307 27,122 Investment income 108,932 58,643 32,516 16,605 13,965

Total revenues 3,392,037 3,167,159 3,009,272 2,908,359 2,788,429

ExpendituresCurrent:

Professional fees 15,020 12,166 12,242 12,040 10,366 Contracted services 78,937 73,637 64,800 60,618 57,944 Other expenditures 4,715 4,474 20,028 4,642 6,662

Debt service:Principal retirement 1,330,000 1,235,000 1,200,000 1,180,000 1,015,000 Interest and fees 1,802,233 1,769,788 1,704,865 1,521,694 1,167,903 Debt issuance costs 461 149,690 1,960 3,500 632,105 Debt defeasance - 47,000 - - 381,000

Total expenditures 3,231,366 3,291,755 3,003,895 2,782,494 3,270,980

Excess (Deficiency) of RevenuesOver Expenditures 160,671 (124,596) 5,377 125,865 (482,551)

Other Financing Sources (Uses)General obligation bonds issued - 2,875,000 - - 21,405,000 Deposit with escrow agent - (2,805,649) - - (20,482,045) Premium on debt issued - 88,047 - - - Discount on debt issued - - - - (283,587)

Total other financing sources 0 157,398 0 0 639,368

Excess of Revenues and Other FinancingSources Over Expenditures and OtherFinancing Uses 160,671 32,802 5,377 125,865 156,817

Fund Balance, Beginning of Year 3,219,861 3,187,059 3,181,682 3,055,817 2,899,000

Fund Balance, End of Year 3,380,532$ 3,219,861$ 3,187,059$ 3,181,682$ 3,055,817$

Amounts

49

2019 2018 2017 2016 2015

95.6 % 97.1 % 97.6 % 97.9 % 98.5 %1.2 1.0 1.3 1.5 1.0 3.2 1.9 1.1 0.6 0.5

100.0 100.0 100.0 100.0 100.0

0.5 0.4 0.4 0.4 0.4 2.3 2.3 2.1 2.1 2.1 0.1 0.1 0.7 0.2 0.2

39.2 39.0 39.9 40.6 36.4 53.2 55.9 56.6 52.3 41.9 0.0 4.7 0.1 0.1 22.7

- 1.5 - - 13.6

95.3 103.9 99.8 95.7 117.3

4.7 % (3.9) % 0.2 % 4.3 % (17.3) %

Percent of Fund Total Revenues


Board Members, Key Personnel and Consultants Year Ended August 31, 2019

50

Complete District mailing address:of Harris County, Texas

District business telephone number:

Submission date of the most recent District Registration Form (TWC Sections 36.054 and 49.054):

Limit on fees of office that a director may receive during a fiscal year:

Term ofOffice

Elected & Title atBoard Members Expires Fees* Year-end

Elected05/16-

B. Eugene Newsom 05/20 7,200$ 9,044$ President

Elected05/16- Vice

Tommie Ruth Allen 05/20 4,050 2,482 President

Elected05/18-

Donald E. Matlock 05/22 5,550 1,221 Secretary

Elected Assistant 05/18- Vice

Keith L. Sims, Sr. 05/22 4,200 1,513 President

Elected05/18- Assistant

Shantai Warren 05/22 7,200 8,961 Secretary

*Fees are the amounts actually paid to a director during the District's fiscal year.

Harris County Municipal Utility District No. 278,

7,200$

April 17, 2019

ReimbursementsExpense

713.860.6400

c/o Allen Boone Humphries Robinson LLP3200 Southwest Freeway, Suite 2600Houston, Texas 77027


Board Members, Key Personnel and Consultants (Continued) Year Ended August 31, 2019

51

Consultants Date Hired Title

185,940$ General CounselAllen Boone Humphries Robinson LLP 01/01/17 165,157 Bond Counsel

Tax Assessor/Assessments of the Southwest, Inc. 01/01/86 45,351 Collector

BGE, Inc. 03/08/12 244,387 Engineer

BKD, LLP 08/31/93 39,900 Auditor

LegislativeHarris County Appraisal District Action 34,430 Appraiser

Municipal Accounts & Consulting, L.P. 04/10/03 49,190 Bookkeeper

B. Eugene Newsom 05/04/18 75,000 General Manager

Delinquent Perdue, Brandon, Fielder, Collins & Mott, L.L.P. 01/10/97 15,020 Tax Attorney

Rathmann & Associates, L.P. 02/01/93 124,500

Si Environmental, LLC 05/10/12 985,813 Operator

Investment Officers

Mark M. Burton and Ghia Lewis 07/08/04 N/A Bookkeepers

ReimbursementsExpenseFees and

Financial Advisor

MUNICIPAL BONDINSURANCE POLICY

ISSUER:

BONDS: $ in aggregate principal amount of

Policy No: -N

Effective Date:

Premium: $

ASSURED GUARANTY MUNICIPAL CORP. ("AGM"), for consideration received, herebyUNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the"Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) forthe Bonds, for the benefit of the Owners or, at the election of AGM, directly to each Owner, subject only tothe terms of this Policy (which includes each endorsement hereto), that portion of the principal of andinterest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment bythe Issuer.

On the later of the day on which such principal and interest becomes Due for Payment or theBusiness Day next following the Business Day on which AGM shall have received Notice of Nonpayment,AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and intereston the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, butonly upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right toreceive payment of the principal or interest then Due for Payment and (b) evidence, including anyappropriate instruments of assignment, that all of the Owner's rights with respect to payment of suchprincipal or interest that is Due for Payment shall thereupon vest in AGM. A Notice of Nonpayment will bedeemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on suchBusiness Day; otherwise, it will be deemed received on the next Business Day. If any Notice ofNonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM forpurposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent orOwner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement inrespect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or rightto receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of theOwner, including the Owner's right to receive payments under the Bond, to the extent of any payment byAGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, tothe extent thereof, discharge the obligation of AGM under this Policy.

Except to the extent expressly modified by an endorsement hereto, the following terms shall havethe meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) aSaturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer'sFiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment"means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the dateon which the same shall have been duly called for mandatory sinking fund redemption and does not refer toany earlier date on which payment is due by reason of call for redemption (other than by mandatory sinkingfund redemption), acceleration or other advancement of maturity unless AGM shall elect, in its solediscretion, to pay such principal due upon such acceleration together with any accrued interest to the dateof acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment ofinterest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficientfunds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal andinterest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, anypayment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuerwhich has been recovered from such Owner pursuant to the

APPENDIX C

SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY

of 2 Policy No. -N

United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable orderof a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequentlyconfirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee orthe Paying Agent to AGM which notice shall specify (a) the person or entity making the claim, (b) the PolicyNumber, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner"means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under theterms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person orentity whose direct or indirect obligation constitutes the underlying security for the Bonds.

AGM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy bygiving written notice to the Trustee and the Paying Agent specifying the name and notice address of theInsurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the PayingAgent, (a) copies of all notices required to be delivered to AGM pursuant to this Policy shall besimultaneously delivered to the Insurer's Fiscal Agent and to AGM and shall not be deemed received untilreceived by both and (b) all payments required to be made by AGM under this Policy may be made directlyby AGM or by the Insurer's Fiscal Agent on behalf of AGM. The Insurer's Fiscal Agent is the agent of AGMonly and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's FiscalAgent or any failure of AGM to deposit or cause to be deposited sufficient funds to make payments dueunder this Policy.

To the fullest extent permitted by applicable law, AGM agrees not to assert, and hereby waives,only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses(including, without limitation, the defense of fraud), whether acquired by subrogation, assignment orotherwise, to the extent that such rights and defenses may be available to AGM to avoid payment of itsobligations under this Policy in accordance with the express provisions of this Policy.

This Policy sets forth in full the undertaking of AGM, and shall not be modified, altered oraffected by any other agreement or instrument, including any modification or amendment thereto. Except tothe extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy isnonrefundable for any reason whatsoever, including payment, or provision being made for payment, of theBonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOTCOVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76OF THE NEW YORK INSURANCE LAW.

In witness whereof, ASSURED GUARANTY MUNICIPAL CORP. has caused this Policy to beexecuted on its behalf by its Authorized Officer.

ASSURED GUARANTY MUNICIPAL CORP.

ByAuthorized Officer

A subsidiary of Assured Guaranty Municipal Holdings Inc.1633 Broadway, New York, N.Y. 10019(212) 974-0100

Form 500NY (5/90)